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TAXATION 

OF 

FEDERAL,  STATE  AND 
MUNICIPAL  BONDS 


By 


JOHN  H.  HOFFMAN 

AND 

DAVID  M.  WOOD 
OF  THE  NEW  YORK  BAR. 


Copyrighted 
1921 

ly 

JOHN  H.  HOFFMAN 

AND 

DAVID  M.  WOOD 

NEW  YORK,  N.  Y. 


PRINTED  BY 

WILBUR  &  HASTINGS 

NEW  YORK,  N.  Y. 


V 


FOREWORD. 

This  little  brochure  has  been  prepared  by  my  office  assist- 
ants, at  my  suggestion,  on  a  subject  cognate  but  collateral 
to  the  work  of  my  office.  I  believe  that  dealers  and  investors 
will  find  it  a  complete  and  valuable  statement  of  the  law. 

It  should  be  studied  and  applied  from  a  strictly  legal 
standpoint.  It  does  not  pretend  to  be  a  discussion  of  the  eco- 
nomic side  of  tax  exempt  securities. 

V  The  opinions  expressed  and  conclusions  reached  are  personal 

,^  to  the  writers,  but  I  believe  that   their  work  will    be   found  to 

v^  be  a  reliable  guide  to  those  seeking  light  on  a  subject  of  great 

^J^  present  interest. 


JOHN  C.  THOMSON. 


1619  Equitable  Building, 
120  Broadway. 

September,  1921. 


374(515 


PREFACE. 


This  Treatise  has  been  written  in  the  hope  of  supplying  a 
long-felt  want  —  a  single  volume  containing  a  concise  exposition 
of  the  law  of  taxation,  as  applied  to  Federal,  state  and  muni- 
cipal bonds,  and  an  exhaustive  analysis  of  the  tax  laws  of  the 
United  States,  and  of  each  State  and  Territory  of  the  United 
States,  with  reference  to  such  securities. 

Every  effort  has  been  made  to  render  this  complex  subject 
intelligible  to  the  layman,  as  this  volume  has  been  prepared, 
primarily,  to  meet  the  needs  of  investors  and  dealers  in  Federal, 
state  and  municipal  bonds. 


JOHN  H.  HOFFMAN 
DAVID  M.  WOOD 

New  York,  September,  1921. 


CONTENTS. 
PART  I. 

I.  PAGE 

The  Taxing  Power. 
Sees. 

1.  Definition  of  the  Taxing  Power 1 

2.  Taxing  Power  of  the  United  States 1 

3-5.     Taxing  Power  of  the  States 1-2 

6.     Limitations  upon  the  Federal  Taxing  Power.  2 

7-9.     Limitations  upon  the  Taxing  Power  of  the 

States  3 

n. 

Taxation  of  Federal  Bonds. 

10.     By  the  United  States 3 

11-12.     By  the  States 4 

13.  By  the  Territories 4 

III. 

Taxation  of  State  and  Municipal  Bonds. 

14.  Eelation  of  the  Federal  Government  to  the 

States  5 

15.  Taxation  by  the  United  States 5 

16.  Taxation  by  the  Territories 6 

17-21.     Taxation  by  the  States 6-7 

IV. 

Exemption  of  State  and  Municipal  Bonds. 

22.  Power  to  Exempt  from  Taxation 8 

23.  Constitutional  Limitations 8 

24.  Effect  of  Uniformity  Clause 8 

25.  Tennessee  Rule 9 

26.  Louisiana  Rule 10 

27.  Georgia  Rule 10 

28.  North  Carolina  Rule 11 

29.  South  Carolina  Rule 11 

30.  Oklahoma  Rule 12 


CONTENTS 


Sees. 

31. 

32. 

33. 

34. 
35-45. 


53-56. 
57. 

58. 

59. 

60. 
61. 

62. 
63. 
64. 

65. 

66. 

67. 

68-70. 


South  Dakota  Rule 

Missouri  Rule 

Montana  Rule 

Exceptions  to  Rule  Discussed. 
Summary  of  Decisions 


V. 

Contracts  for  Exemption. 

46-47.     Contracts  by  the  United  States 

48.     Contracts  by  the  Territories 

49-52.     Contracts  by  the  States 


VI. 
Income  Taxes. 

Nature  of  the  Tax 

Taxation  of  Income  of  Federal  Bonds  by  the 

United    States 

Taxation  of  Income  of  Territorial  Bonds  by 

the  United  States 

Taxation  of  Income  of  State  and  Municipal 

Bonds  by  the  United  States 

Necessity  for  the  Sixteenth  Amendment 

Effect  of  the   Sixteenth  Amendment  to  the 

Federal  Constitution 

The  case  of  Evans  v.  Gore 

Authors '  Opinion 

Taxation  of  Income  of  Bonds  of  the  United 

States  by  the  Territories 

Taxation  of  Income  of  Territorial  Bonds  by 

the  Territories 

Taxation  of  Income  of  State  and  Municipal 

Bonds  by  the  Territories 

Taxation  of  Income  of  Federal  Bonds  by  the 

States    

Taxation  of  Income  of  State  and  Municipal 

Bonds  by  the  States 


VII. 

Taxation  of  Bonds  of  Non-Residents. 

71-73.  General  Rules 

74.  Rule  as  to  Public  Securities 

75-76,  Situs  for   Taxation 

77.  Power  to  Deduct  Tax  from  interest  on  Bonds. 


PAGE 

13 
13 
14 
14 
14-18 


18 

18 

19-20 


20-21 
21 

22 

22 
23 

23 
24 
24 

25 

25 

25 

26 

26-27 


27-28 
28 

28-29 
29 


CONTENTS  111 


Sees.  PAGE 

78.  Limitations  imposed  by  Federal  Constitution.  29 

79.  Double  Taxation 30 

VIII. 

Effect  of  Invalid  Recital. 

80.  Effect  on  Validity  of  Bond 30 

81-84.     Rights  of  Bondholders 30-32 

IX. 

85.  Power  of  Municipality  to  Exempt  Bonds 

from  Taxation.  32 

X. 

86.  Secured  Debt  Acts.  32 

XL 

87.  Attempts  to  Evade  Taxation.  33 

XII. 

Inheritance  Taxes, 

88.  Character  of  the  Tax 33 

89.  Effect  upon  Tax-exempt  Securities 34 

90.  Bequests   to   the   United    States    and   Public 

Bodies 35 

91.  Federal  Inheritance  Taxes 35 

XIII. 

92.  Franchise  and  Privilege  Taxes.  35 

XIV, 

Taxation  of  Corporate  Stock. 

93.  Character  of  the  Tax 35 

94.  Effect  upon  Tax-exempt  Investments 36 

95.  Method  of  Collection 37 

96.  When  Corporation  Exempt  from  Taxation, . ,  37 

97.  Rule  in  Oklahoma 38 

98.  Stock  of  National  Banks 38 

99.  Rule  Stated 39 

XV. 
100.      Notes  and  Certificates  op  Indebtedness.  39 


IV  CONTENTS 


PART  2. 

Analysis  of  the  tax  laws  of  the  United  States,  of  the  several 
States  and  of  the  Territories : 

Pages 

United  States 41-44 

Alabama   45 

Alaska  46 

Arizona 47 

Arkansas 48 

California 49 

Colorado 50 

Connecticut ,     51-52 

Delaware 53 

District  of  Columbia  54 

Florida    ^.^  55 

Georgia   56 

Hawaii   57 

Idaho 58 

Illinois  • 59 

Indiana  60-61 

Iowa 62 

Kansas  63 

Kentucky    64 

Louisiana   65 

Maine    • 66 

Maryland    67 

Massachusetts   68 

Michigan ^.^ 69 

Minnesota 70 

Mississippi    71 

Missouri    72 

Montana   73 

Nebraska 74 

Nevada    ^j 75 

New  Hampshire 76 


CONTENTS 


Pages 

New  Jersey   77 

New  Mexico ^. . .  78 

New  York 79-80 

North  Carolina ^.^ 81 

North  Dakota   82 

Ohio    • 83 

Oklahoma  ^. . .  84-85 

Oregon  86 

Pennsylvania  87 

Philippine  Islands ^ 88 

Porto  Rico  89 

Rhode  Island • 90 

South  Carolina  91 

South  Dakota 92 

Tennessee 93-94 

Texas 95 

Utah  96 

Vermont 97 

Virginia 98 

Washington    99 

West  Virginia 100-101 

Wisconsin 102 

Wyoming 103 


TABLE  OF  CASES. 

(  REFERENCES    ARE    TO    PAGES  ) 

PAGE 

Aberdeen  Bank  v.  Chehalis  County,  160  U.  S.  440 37 

Adair  v.  Robinson,  6  Tex.  Civ.  App.  275 ;  25  S.  W.  734  37 

Alderman  v.  Wells,  85  S.  C.  507 ;  67  S.  E.  781 21 

Ambrosini  v.  United  States,  187  U.  S.  1 22 

Andrews  v.  Auditor,  28  Gratt.  (Va.)  115 16 

Appeal  Tax  Court  v.  Patterson,  50  Md.  354;  aff.  104 

U.  S.  592  7 

Bank  v.  Russellville,  133  Ky.  637 ;  118  S.  W.  921 7 

Bank  of  Commerce  v.  New  York  City,  2  Black  (U.  S.) 

620    1 

Bank  of  Oxford  v.  Mayor,  70  Miss.  504;  12  So.  203. .. .  37 

Bank  v.  Yankton  County,  101  U.  S.  129 1,  6,  22 

Batterson  v.  Hartford,  50  Conn.  558 37,  51 

Bells  Gap  R.  R.  Co.  v.  Pennsylvania,  134  U.  S.  232 7 

Bonaparte  v.  Tax  Court,  104  U.  S.  592 7 

Boyer  v.  Jones,  14  Ind.  354 30 

Bronson,  Matter  of,  150  N.  Y.  1 ;  44  N.  E.  707 34 

Brown  v.  Gulliford,  181  Iowa  897 ;  165  N.  W.  182 34 

Brushaber  v.  Union  Pac.  R.  R.  Co.,  240  U.  S.  1 1,  20,  23 

Buck  V.  Beach,  206  U.  S.  392 28,  29,  61 

Buist  V.  Charleston,  77  S.  C.  260;  57  S.  E.  862 32 

Carolina  Nat.  Bank  v.  Spigner,  106  S.  C.  185 ;  90  S.  E. 

748    37 

Champaign  County  Bank  v.  Smith,  7  Ohio  St.  42 6 

Chester  County  v.  White  Bros.,  70  S.  C.  433 ;  50  S.  E. 

28    12,15,91 

Choate  v.  Trapp,  224  U.  S.  665 18 

Cleveland  Trust  Co.  v.  Lander,  184  U.  S.  Ill 37 

Coe  V.  Errol,  116  U.  S.  517 30 

Coite  V.  Society  for  Savings,  32  Conn.  186;  6  Wall, 

(U.  S.)  594 4,  35,  51 

Collector  v.  Day,  11  Wall  (U.  S.)   113 1,  5,  22 

Coloma  V.  Eaves,  92  U.  S.  484 31 

vii 


viii  TABLE   OF   CASES 

PAGE 

Commissioners  v.  Webb,  160  N.  C.  594;  76  S.  E.  552.  .14, 16,  81 
Commonwealth  v.  Allegheny,  16  Week!}'-  Notes  of  Cases 

(Pa.)    316    19 

Commonwealth  v.  Fall  Brook  Coal  Co.,  156  Pa.  488;  26 

Atl.  1071   36 

Commonwealth  v.  Martin,  107  Pa.  185 19 

Commonwealth  v.  Maury,  82  Va.  883  ;  1  S.  E.  185 6 

Commonwealth  v.  Pittsburg,  13  Pa.  County  Court  Rep.  5  19 

Commonwealth  v.  Southworth,  18  Phila.  (Pa.)  593.  ...  19,  27 

Commonwealth  v.  Werth,  116  Va.  604;  82  S.  E.  695.  . .  .  20 

Conways  Estate  v.  State,          Ind.           ;  120  N.  E.  717  34 

Corbin  v.  Baldwin,  92  Conn.  99 ;  101  Atl.  834 34 

Cream  of  Wheat  Co.  v.  Grand  Forks  County,  253  U.  S. 

325    30 

Crowder  v.  Riggs,  153  Ind.  158 ;  53  N.  E.  1019 33 

Cruse  V.  Fischl,  55  Mont.  258 ;  175  Pae.  878 14,  73 

De  Ganay  v.  Lederer,  250  U.  S.  376 21,  28 

D.  L.  &  W.  R.  R.  Co.  V.  Pennsylvania,  198  U.  S.  341 .  .  28 

Denver  v.  Home  Sav.  Bank,  236  U.  S.  101 39 

Denver  &  R.  G.  Co.  v.  Church,  17  Colo.  1 50 

Detmold  v.  Engle,  34  N.  J.  L.  425 29 

Dixon  County  v.  Field,  111  U.  S.  83 31 

Dixon  County  v.  Halstead,  23  Neb.  697 ;  37  N.  W.  621. .  4,  74 
Durham  County  v.  BlackweU,  116  N.  C.  441 ;  21  S.  E. 

423    36 

English  V.  Richardson,  224  U.  S.  680 18 

Eoff  V.  Kennefick-Hammond  Co.,  80  Ark.  138 ;  96  S.  W. 

986    48 

Evans  v.  Gore,  253  U.  S.  245 24 

Fallbrook  Irr.  Dist.  v.  Bradley,  164  U.  S.  112 3 

Farkas  v.  Smith,  147  Ga.  503 ;  94  S.  E.  1016 34 

Farmers  Bank  v.  Minnesota,  232  U.  S.  516 4,  26,  70 

Fidelity  &  Columbia  Tr.  Co.  v.  Louisville,  245  U.  S.  54  28 

Fifield  V.  Close,  15  Mich.  505 2 

First  Nat.  Bank  v.  Allbright,  13  N.  Mex.  514 ;  86  Pac. 

548    5,  25,  39 


TABLE   OP   CASES  ix 


PAGE 

First  Nat.  Bank  v.  Bd.  of  Eeviewers,  41  La.  Ann.  181 ; 

5  So.  408  37 

Fish  V.  Cleland,  33  111.  238   32 

Flint  V.  Stone  Tracy  Co.,  220  U.  S.  107 35 

Foster  v.  Roberts,  142  Tenn.  350;  219  S.  W.  729 9,15,93 

Georgia  Home  Ins.  Co.  v.  Warten,  113  Ala.  479;  22 

So.  288  32 

German  American  Sav.  Bank.  v.  Council,  118  Iowa  84; 

91  N.  W.  829   37 

Glasgow  V.   Rowse,   43  Mo.   479 21 

Grether  v.  Wright,  75  Fed.  742   4, 16,  54,  67 

Hall  V.  County  Com'rs.,  92  Mass.  100 68 

Hartman  v.  Greenhow,  102  U.  S.  672 7 

Hawley  v.  City  of  Maiden,  232  U.  S.  1 28 

Hays  V.  McDaniel,  130  Ark.  52 ;  196  S.  W.  934 48 

Head  Money  Cases,  112  U.  S.  580 2 

Henson  v.  Monday,           Tenn.           ;  224  S.  W.  1043. .  35 

Hepburn  v.  Griswold,  8  Wall.  (U.  S.)  603 18 

Herron  v.  Keeran,  59  Ind.  472 29 

Holly  Springs  Sav.  &  Ins.  Co.  v.  Marshall  County,  52 

Miss.  281    33 

Home  Ins.  Co.  v.  Assessors,  42  La.  Ann.  1131 ;  8  So. 

481    37 

Home  Ins.  Co.  v.  New  York,  134  U.  S.  594 35 

Home  Sav.  Bank  v.  Des  Moines,  205  U.  S.  503 4,  37 

Hooper  v.  State,  141  Ala.  Ill ;  37  So.  662 4,  45 

Howell,  Village  of  v.  Gordon,  127  Mich.  517 ;  86  N.  W. 

1042    69 

Hubbard  v.  Johnson  County,  23  Iowa  130 36 

Income  Tax  Cases,  148  Wis.  456 ;  134  N.  W.  673 ;  135 

N.    W.    164    21 

In  re  First  Nat.  Bank  of  Aurora,  Neb.  ;  171 

N.  W.  912 36 

In  re  Assessment  of  First  Nat.  Bank  of  Chickasha,  58 

Okl.  508;  160  Pac.  469 13, 15,  37,  38,  84 

In  re  First  State  Bank  of  Oklahoma  City,  171  Pac. 

864    13, 15,  39',  84 


TABLE  OF   CASES 


PAGE 

In  re  Peoples  Bank  of  Vermont,  203  111.  300 ;  67  N.  E. 

777    33 

Jenkins  v.  Charleston,  5  S.  C.  393 ;  rev.  96  U.  S.  432 .  . . .  7 

Jones  V.  Seward  County,  10  Neb.  154;  4  N.  W.  946 33 

Keith  V.  State,  Funding  Board,  127  Tenn.  441,  155  S.  W. 

142    93 

Knowlton  v.  Moore,  178  U.  S.  41 2,  21 

Le  Loup  V.  Mobile,  127  U.  S.  640 3 

Loan  Ass'n.  v.  Topeka,  20  Wall.  (U.  S.)  655 2 

Louisville  Ferry  Co.  v.  Kentucky,  188  U.  S.  385 28 

Lumberton  Imp.  Co.  v.  Robeson  County,  146  N.  C.  353 ; 

59  S.  E.  1014 30 

Maeky,  Re.  46  Colo.  79 ;  102  Pae.  1075 35 

Magoun  v.  Illinois  Tr.  &  Sav.  Bank,  170  U.  S.  283 34 

Maguire  v.  Tax  Com'r.,  230  Mass.  503;  120  N.  E.  162. .  21 

Maguire  v.  Bd.  of  Revenue,  71  Ala.  401 36 

Marion  Nat.  Bank  v.  Burton,  121  Ky.  876 ;  90  S.  W.  944  37 

Matter  of  Bronson,  150  N.  Y.  1 ;  44  N.  E.  707 34 

Matter  of  Merriam,  141  N.  Y.  479 ;  36  N.  E.  505 ;  163 

U.  S.  625  33,  34 

Maxwell  v.  Bugbee,  250  U.  S.  525 30 

Mayor  v.  Hussey,  67  Md.  112 ;  9  Atl.  19 67 

Memphis  v.  Farrington,  8  Baxt.   (Tenn.)  539;  rev.  95 

U.   S.   679    36 

Mercantile  Bank  v.  New  York,  121  U.  S.  138 16, 17 

Merchants  Bank  v.  McHenry  County,  31  N.  D.  108 ;  153 

N.  W.   386    36 

Merchants  Bank  v.  Pennsylvania,  167  U,  S.  461 37 

Merchants  Ins.  Co.  v.  Newark,  54  N.  J.  L.  138 ;  23  Atl. 

305    19 

Metropolitan  Life  Ins.  Co.  v.  Newark,  62  N.  J.  L.  74; 

40  Atl.  573   29 

McCormick  v.  Fitch,  14  Minn.  252 29 

McCuUoch  V.  Maryland,  4  Wheat.  (U.  S.)  316 4 

Miller  v.  Wilson,  60  Ga.  505 11,  56 

Minot  V.  Winthrop,  162  Mass.  113 ;  38  N.  E.  512 33 


TABLE   OF   CASES  xi 


PAGE 

Mitchell  V.  Leavenworth  County,  9'  Kan.  344 ;  91  U.  S. 

206    33 

Monroe  Sav.  Bank  v.  Rochester,  37  N.  Y.  365 35 

Morrow  v.  U.  S.,  243  Fed.  854 18 

Mosely  v.  State,  115  Tenn.  52;  86  S.  W.  714 4,  93 

Murdock  v.  Ward,  178  U.  S.  139 35 

Murray  v.  Charleston,  96  U.  S.  432 6,  29 

Mutual  Life  Ins.  Co.  v.  Phinney,  178  U.  S.  327 32 

Nashville  v.  Bank  of  Tennessee,  1  Swan  (Tenn.)  269.  .  17 

Nat.  Bank  v.  Commonwealth,  9  Wall.  (U.  S.)  353 37 

Nat.  Surety  Co.  v.  Starkey,  41  S.  D.  356;  170  N.  W. 

582    13,  15, 16,  92 

Nat.  Union  Bank  v.  Neil,  106  S.  C.  173;  90  S.  E.  744, 

12, 16,  37,  91 

Nettleton's  Appeal,  76  Conn.  235;  56  Atl.  565 34 

Newark  City  Bank  v.  Assessors,  30  N.  J.  L.  13 19 

New  Orleans  v.  Stempel,  175  U.  S.  309 28 

New  York  v.  Roberts,  171  U.  S.  658 35 

Nicol  V.  Ames,  173  U.  S.  509 1,  2 

Oakman  v.  Small,  282  111.  360;  118  N.  E.  775 34 

Ogden  V.  Walker,  59  Ind.  460 33 

Old  Nat.  Bank  v.  County  Court,  58  W.  Va.  559;  52 

S.  E.  494  37, 100 

Opinion  of  the  Justices,  77  N.  Hamp.  611;  93  Atl.  311  76 
Ottumwa   Sav.   Bank  v.   Ottumwa,   95   Iowa   176;    63 

N.  W.   672    4,62 

Ouachita  County  v.  Rumph,  43  Ark.  525 48 

Owensboro  Nat.  Bank  v.  Owensboro,  173  U.  S.  664 38 

Parker  v.  Sun  Ins.  Co.,  42  La.  Ann.  1172 ;  8  So.  618 ... .  37 

Paul  V.  Virginia,  8  Wall.  (U.  S.)  168 30 

Peck  V.  Lowe,  247  U.  S.  165 23 

Penick  v.  Foster,  129  Ga.  217 ;  58  S.  E.  773 10, 17,  56,  84 

Penrose  v.  Chaffraix,  106  La.  250;  30  So.  718 38 

People  V.  Bradley,  39  111.  130;  rev.  4  Wall.  (U.  S.)  459.  .  4,  37,  59 

People  V.  Doe,  36  Cal.  220 17 

People  V.  Home  Ins.  Co.,  29  Cal.  533 6 

People  V.  Knapp,           N.  Y.            ;  129  N.  E.  202. . . .  21 


Xii  TABLE  OP  CASES 


PAGE 

People  V.  Moore,  1  Idaho  504 5,  25,  39 

People  V.  McCreery,  34  Cal.  432 16, 17 

People  V.  Salomon,  51  111.  37 17 

People  V.  Tax  Commr's,  35  N.  Y.  423;  4  Wall.  (U.  S.) 

244    37 

People  V.  Weaver,  100  U.  S.  539 37 

Perkins  r.  Westwood,  22t  Mass.  268;  115  N.  E.  411.  . .  33 

Philadelphia  S.  S.  Co.  v.  Pennsylvania,  122  U.  S.  326. .  3 

Plummer  v.  Coler,  178  U.  S.  115 34 

Pollock  V.  Farmers  L.  &  T.  Co.,  157  U.  S.  429;  158 

U.  S.  601  5, 16,  22,  23 

Porter  v.  Railroad,  76  lU.  561 36 

Provident  Inst.  v.  Massachusetts,  6  Wall.  (U.  S.)   611  35 

Pullman's  Pal.  Car  Co.  v.  Pennsylvania,  141  U.  S.  18. . .  27 
Pullen  V.   Corporation  Comm'n.,   152  N.   C.   548;   68 

S.  E.  155  11,  81 

R.  I.  Hosp.  Trust  Co.  v.  Armington,  22  R.  I.  33 4,  90 

Richardson  v.  St.  Albans,  72  Vt.  1 ;  47  Atl.  100 38 

Roberts  v.  Auto  Ins.  Co.,  89  Conn.  181;  93  Atl.  243 37 

St.  Louis  Bldg.  Ass'n.  v.  Lightner,  47  Mo.  393 4,  37,  72 

Salmon  v.  Johnson,  78  Okla.  182 ;  189  Pac.  537 85 

Salt  Lake  City  Nat.  Bank  v.  Golding,  2  Utah  1, 

1,  5,  22,  25,  37,  39,  96 

Shaffer  v.  Carter,  252  U.  S.  37 21 

Shotwell  V.  Moore,  129  U.  S.  590 33 

Silver  Bow  County  v.  Davis,  6  Mont.  306 5,  25,  39' 

Singer  Mfg.  Co.  v.  Heppenheimer,  58  N.  J.  L.  633 ;  34 

Atl.  1061  38 

Sinking  Fund  Cases,  99  U.  S.  700 18 

Smith  V.  Kansas  City  Title  &  Trust  Co.,  U.  S.         .  44 

Snyder  v.  Bettman,  190  U.  S.  249 35 

Society  for  Savings  v.  Coite,  6  Wall.  (U.  S.)  594 4,  35,  51 

Stanton  v.  Baltic  Mining  Co.,  240  U.  S.  103 23 

State  V.  Assessors,  111  La.  982;  36  So.  91 2, 10, 15,  39,  65 

State  V.  Branin,  23  N.  J.  L.  484 38 

State  V.  Donald,  160  Wis.  21 ;  151  N.  W.  331 102 

State  V.  Fidelity  &  Deposit  Co.,  35  Tex.  Civ.  App.  214 ; 

80  So.  W.  544 95 


TABLE  OP  CASES  Xlll 


PAGE 

State  V.  Gordon,  268  Mo.  713 ;  188  S.  W.  160 13,  72 

State  V.  Guinotte,  275  Mo.  298;  204  S.  W.  806 34 

State  V.  Hannibal  St.  J.  R.  Co.,  37  Mo.  265 36 

State  V.  Simmons,  70  Miss.  485 ;  12  So.  477 36 

State,  et  al.  v.  Haight,  34  N.  J.  L.  128 4,  77 

State,  ex  rel.  Da  Ponte  v.  Assessors,  35  La.  Ann.  651, 

2, 10, 15, 16,  65 
State,  ex  rel.  Wolf  v.  Parmenter,  50  Wash.  164;  96  Pac. 

1047 99 

State  Nat.  Bank  v.  Memphis,  116  Tenn.  641 ;  94  S.  W. 

606    6 

State  Tax  on  Foreign-Held  Bonds,  15  Wall.    (U.  S.) 

300    1,  6,  28,  29 

Stoddard  v.  Corbin,  94  Conn.  543 ;  109  Atl.  813 51 

Stratton  v.  Collins,  43  N.  J.  L.  562 37 

Strode  v.  Commonwealth,  52  Penn.  St.  181 33,  34 

Succession  of  Kohn,  115  La.  71 ;  38  So.  898 34 

Succession  of  Levy,  115  La.  377 ;  39  So.  37 34 

Talbot  V.  Silver  Bow  County,  139  U.  S.  438 5,  6,  25,  39 

Tarrant  v.  Bessemer  Nat.  Bank,  7  Ala.  App.  285,  61 

So.  47  37 

Tarver  v.  City  of  Dalton,  134  Ga.  462 ;  67  S.  E.  929 ; 

29  L.  R.  A.   (N.  S.)   183  N 31, 32 

Tax  Com'r.  v.  Putnam,  227  Mass.  522;  116  N.  E.  904. .  21 

Tennessee  v.  Whitworth,  117  U.  S.  129 36,  37 

Travis  v.  Yale  &  Towne  Mfg.  Co.,  252  U.  S.  60.  .3,  21,  30,  79, 103 

Union  Bank  v.  Richmond,  94  Va.  316 ;  26  S.  E.  821 37 

United  States  v.  Perkins,  163  U.  S.  625 33,  34,  35 

United  States  v.  Railroad  Co.,  17  Wall.  (U.  S.)  322. .. .         5, 16 

Van  Allen  v.  The  Assessors,  3  Wall.   (U.  S.)  573 37,38 

Van  Brocklin  v.  Tennessee,  117  U.  S.  151 3,  22 

Vice  V.  Kirksville,  280  Mo.  348 ;  217  S.  W.  77 13,  72 

Von  Hoffman  v.  City  of  Quincy,  4  Wall.  (U.  S.)  535. .  19 

Waco  V.  Amicable  Life  Ins.  Co.,  230  S.  W.  698 95 

Walker  v.  People,  64  Colo.  143 ;  171  Pac.  747 34 

Wallace  v.  Myers,  38  Fed.  184 34 


Xiv  TABLE  OF  CASES 


PAGE 

Ward  V.  Maryland,  12  Wall.  (U.  S.)  418 30 

Waring  v.  Savannah,  60  Ga.  93 21 

Webb  V.  Burlington,  28  Vt.  188 7 

Weston  V.  Charleston,  2  Pet.  (U.  S.)  449 4, 17,  26 

Williams  v.  Weaver,  75  N.  Y.  30 ;  100  U.  S.  547 37 

Wire  Co.  v.  Wollbrinck,  275  Mo.  339;  205  S.  W.  196. .  21 

Wright  V.  Stilz,  27  Ind.  338 37 


I.   THE  TAXING  POWER. 

1.  Definition  of  the  Taxing  Power: — The  power  to  tax  is 
an  essential  incident  to  sovereignty.  It  arises  out  of  necessity 
and  is  possessed  by  all  sovereign  states.  Necessarily,  it  is  limited 
to  subjects  within  the  jurisdiction  of  the  state.  These  subjects 
are  persons,  property  and  business.  Whatever  form  taxation 
may  assume,  it  must  relate  to  one  of  these  subjects.^ 

2.  Taxing  Power  of  the  United  States : — Power  ' '  to  lay  and 
collect  taxes,  duties,  imposts  and  excises"  is  conferred  upon  Con- 
gress by  Art.  1,  Sec.  8  of  the  Constitution  of  the  United  States. 
That  this  power  is  exhaustive  and  embraces  every  conceivable 
power  of  taxation  has  never  been  questioned,  but  it  is  also  con- 
ceded that  it  is  subject  to  the  limits  express  or  implied  contained 
in  other  sections  of  the  Federal  Constitution.^ 

3.  Taxing  Power  of  the  States: — The  States  composing  the 
United  States  are  sovereign  states,^  and  the  power  of  taxation 
is,  therefore,  inherent  in  each  state.  This  is  not  true,  however, 
of  the  territories  of  the  United  States,  whether  organized  or  unor- 
ganized. The  relation  of  the  territories  to  the  Federal  Govern- 
ment is  similar  to  the  relation  existing  between  a  state  and  its 
counties.*  A  territory  has  only  such  powers  as  are  conferred 
upon  it  by  Congress.  The  power  of  taxation  in  a  territory  is 
not  an  attribute  of  sovereignty  but  is  delegated  to  it  by  the  Fed- 
eral Government. 

4.  Unless  restrained  by  the  provisions  of  the  state  or  Fed- 
eral Constitution,  the  power  of  a  state  as  to  the  mode,  form  and 
extent  of  taxation  is  unlimited,  where  the  subjects  to  which  it 
applies  are  within  its  jurisdiction. ^  The  legislature  levying 
the  tax  is  the  sole  and  ultimate  judge  of  the  expediency  or  neces- 

•  State  Tax  on  Foreign-held  Bonds,  15  Wall.  (U.  S.)  300. 
» Bniahaber  v.  Union  Pac.  R.  R.  Co.,  240  U.  S.  1. 

Nicol  V.  Ames,  173  U.  S.  509. 
•Bank  of  Commerce  v.  New  York  Citv,  2  Black  (U.  S.)  620. 
Collector  v.  Day,  11  Wall.  (U.  S.)  113. 

*  Bank  v.  Yankton  County,  101  IT.  S.  129. 

Salt  Lake  City  Nat.  Bank  r.  Golding,  2  Utah  1. 
•State  Tax  on  Foreign-held  Bonds,  15  Wall.   (U.  S.)  300. 

1 


2  TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAIi  BONDS 

sity  of  requiring  it  and  of  the  extent  to  which  it  shall  be  charged 
upon  any  class  of  taxable  subjects.^  Hence,  in  the  absence 
of  constitutional  limitation,  the  legislature  may  select  the  sub- 
jects of  taxation  and  upon  those  subjects  only  may  the  taxing 
officials  of  the  state  extend  the  tax.'^  Subjects  not  selected 
for  taxation  by  the  legislature  are  commonly  designated  as  ' '  Ex- 
empt from  taxation. ' ' 

5.  Purposes  for  which  Taxes  may  be  levied: — The  power 
of  taxation,  however,  can  be  exercised  only  for  public  purposes. 
In  the  leading  case  upon  this  subject,  Mr.  Justice  Miller  said, 
"To  lay  with  one  hand  the  power  of  government  on  the  prop- 
erty of  the  citizens,  and  with  the  other  bestow  it  upon  favored 
individuals,  to  aid  private  enterprise  and  build  up  private  for- 
tunes, is  none  the  less  a  robbery  because  it  is  done  under  the 
forms  of  law  and  is  called  taxation.  This  is  not  legislation. 
It  is  a  decree  under  legislative  forms.    Nor  is  it  taxation."  ^ 

6.  Limitations  upon  the  Federal  Taxing  Power : — The  Con- 
stitution of  the  United  States  contains  three  express  limitations 
upon  the  power  of  taxation  conferred  upon  the  Federal  Govern- 
ment. All  duties,  imposts  and  excises  are  required  to  operate 
uniformly  throughout  the  United  States.^  Taxes  or  duties 
on  articles  exported  from  any  State  are  prohibited,^*^  and 
capitation  and  other  direct  taxes,  except  income  taxes, ^^  are 
also  prohibited,  unless  levied  in  proportion  to  the  census  or 
enumeration  directed  to  be  taken  by  the  Constitution. i-  Many 
limits  upon  this  power  are  also  implied  from  the  nature  of  our 
federal  form  of  government  and  from  other  express  limits  im- 
posed upon  the  Federal  Government  by  the  Constitution. 

•  Fifield  V.  Close,  15  Mich.  505. 

'  State  ex  rel.  Da  Ponte  v.  Assessors,  35  La.  Ann.  651. 

State  V.  Assessors,  111  La.  982;  36  So.  91. 
*Loan  Ass'n  v.  Topeka,  20  Wall.  (U.  S.)  655. 

•  Art.  1,  Sec.  8,  CI.  1. 

Head  Money  Cases,  112  U.  S.  580. 

Nicol  V.  Ames,  173  U.  S.  509. 

Knowlton  v.  Moore,  178  U.  S.  41. 
"  Art.  1,  Sec.  9,  CI.  5. 
"  Amendments  Art.  16. 
"  Art.  1,  Sec.  9,  CI.  4. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  3 

7.  Limitations  upon  the  Taxing  Power  of  the  States: — 

Many  limitations  are  imposed  upon  the  taxing  power  of  the  States 
by  the  Constitution  of  the  United  States.  By  the  Fourteenth 
Amendment  the  States  are  prohibited  from  depriving  citizens  of 
property  without  due  process  of  law,  and  this  amendment  has 
been  construed  as  inhibiting  the  levy  of  taxes  except  for  public 
purposes.  1^  Property  of  the  Federal  Government  and  its 
governmental  agencies  are  not  taxable  by  the  States,^*  nor 
can  a  State  tax  interstate  commerce.^^  Non-residents,  more- 
over, cannot  be  taxed  at  a  higher  rate  than  residents  of  the 
State.^^  It  is  also  well  settled  that  a  State  cannot  tax  bonds  of 
the  United  States  or  its  territories  without  the  consent  of 
Congress.  1' 

8.  Many  limits  upon  this  power  are  also  imposed  by  the 
constitutions  of  the  several  States.  The  rate  of  taxation  is  fre- 
quently limited,  and  the  power  to  exempt  property  from  taxa- 
tion is  usually  restricted.  Taxes  for  certain  purposes,  such  as 
taxes  in  aid  of  railroad  and  canal  companies,  are,  likewise,  often 
prohibited. 

9.  Only  such  constitutional  limitations  as  affect  the  power 
to  tax  public  securities  or  to  exempt  them  from  taxation  are 
within  the  scope  of  this  treatise. 


II.    TAXATION  OF  FEDERAL  BONDS. 

10.  By  the  United  States : — The  power  of  the  United  States 
to  tax  ad  valorem  its  own  bonds  or  the  bonds  of  its  territories 
and  of  the  subdivisions  thereof  is  unquestioned,  provided  the 
tax  is  laid  in  proportion  to  the  census  directed  to  be  taken  by 
the  Constitution. IS  No  such  taxes,  however,  are  levied  by 
the  United  States  and  Congress  has  expressly  exempted  from 
taxation   the   bonds   of   the    United    States,^ ^    the    District    of 

'» Fallbrook  Irr.  Dist.  v.  Bradley,  164  U.  S.  112. 

"  Van  Brocklin  v.  Tennessee,  117  TJ.  S.  151. 

"  Philadelphia  S.  S.  Co.  v.  Pennsylvania,  122  U.  S.  326. 

LeLoup  V.  Mobile,  127  U.  S.  640. 
'•  Travis  v.  Yale  &  Towne  Mfg.  Co.,  252  U.  S.  60. 
"  Post.  Sec.  12. 
"  Art.  1,  Sec.  9,  a.  4. 
'•  Revised  Stats.  Sec.  3701. 


4  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

Columbia,-*^  the  Philippine  Islands  and  its  subdivisions,^^  and 
Porto  Rico  and  its  subdivisions. -^ 

11.  By  the  States: — Such  bonds,  however,  cannot  be  taxed 
by  the  States.  It  was  held  very  early  in  the  history  of  the 
United  States,  that  the  State  Governments  have  no  right  to  tax 
any  of  the  constitutional  means  which  are  employed  by  the 
Federal  Government  to  execute  its  constitutional  powers,  and 
that  the  States  have  no  power  by  taxation  or  otherwise,  to  im- 
pede, burden  or  in  any  manner  control  the  operation  of  the 
laws  enacted  by  Congress  to  carry  into  effect  the  powers  vested 
in  the  Federal  Government. ^3  On  these  grounds  the  Supreme 
Court  of  the  United  States,  in  the  case  of  Weston  v.  Charles- 
ton,24  held  that  an  ordinance  of  the  City  of  Charleston,  S.  C, 
attempting  to  tax  stock  of  the  United  States,  was  unconstitu- 
tional. This  decision  has  been  uniformly  followed  by  the  courts 
both  of  the  United  States  and  of  the  several  States.^^ 

12.  As  bonds  of  territories  of  the  United  States  and  of 
the  subdivisions  thereof  are  governmental  agencies  of  the  Fed- 
eral Government,  the  States  likewise  cannot  tax  such  bonds,^*' 
and  the  same  is  true  of  bonds  of  the  District  of  Columbia.^''' 

13.  By  the  Territories: — The  same  principle  would  not  ap- 
pear to  apply  to  the  taxation  of  such  bonds  by  a  territory.  A  ter- 
ritory is  not  a  distinct  sovereignty  and  accordingly  has  no  inde- 
pendent powers.  All  of  its  powers  are  derived  from  Congress  and 
are  subject  to  Congressional  supervision.    The  reason  for  the  rule 

*"  Eevised  Stats.  Sec.  3701. 

"  33  Stats,  at  Large  689. 

'^  39  Stats,  at  Large  953. 

"McCulloch  V.  Maryland,  4  Wheaton  (U.  S.)  316. 

"2  Peters  (U.  S.)  449. 

*"  Home  Sav.  Bank  v.  Des  Moines,  205  U.  S.  513. 

Hooper  v.  State,  141  Ala.  Ill ;  37  So.  662. 

Coite  V.  Society  for  Savings,  32  Conn.  186;  6  Wall.  (U.  S.)  594. 

People  V.   Bradley,   39   111.    130;   rev,   3   Wall.    (U.    S.)    572;    4   Wall. 
(U.  S.)  459. 

Ottumwa  Sav.  Bank  v.  Ottumwa,  95  Iowa,  176;  63  N.  W.  672. 

St.  Louis  Bldg.  Ass'n  v.  Lightner,  47  Mo.  393. 

Dixon  County  v.  Halstead,  23  Neb.  697;   37  N.  W.  621. 

State,  ex  rel.  v.  Haight,  34  N.  J.  L.  130. 

R.  I.  Hosp.  Trust  Co.  v.  Armington,  22  R.  I.  33. 

Mosely  v.  State,  115  Tennessee  52;   86  S,  W.  714. 
"  Fanners  Bank  v.  Minn.,  232  U.  S.  516. 
"Grether  v.  Wright,  75  Fed.  742. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  5 

that  a  State  cannot  tax  an  instrumentality  of  the  United  States, 
is,  therefore,  lacking.  Accordingly,  it  has  been  held  that  a 
territory  may  tax  a  Federal  agency.^^  It  would  seem,  there- 
fore, to  be  within  the  power  of  a  territory  to  tax  bonds  of  other 
territories  and  subdivisions  thereof  unless  restrained  by  act  of 
Congress.  Whether  this  power  also  extends  to  bonds  of  the 
United  States  is  merely  an  academic  question,  as  Congress  has 
prohibited  the  levy  of  such  taxes  by  Section  3701  of  the  Re- 
vised Statutes. 

III.    TAXATION  OF  STATE  AND  MUNICIPAL 

BONDS. 

14.  Relation  of  the  Federal  Government  to  the  States: — 

The  Federal  Government,  and  the  States,  although  both  exist 
within  the  same  territorial  limits,  are  separate  and  distinct  sov- 
ereignties, acting  separately  and  independently  of  each  other, 
within  their  respective  spheres.  The  former  in  its  appropriate 
sphere  is  supreme;  but  the  States  within  the  limits  of  their 
powers  not  granted,  or,  in  the  language  of  the  Tenth  Amendment 
to  the  Federal  Constitution,  "reserved,"  are  as  independent  of 
the  Federal  Government  as  that  government  within  its  sphere  is 
independent  of  the  States. 

15.  Taxation  by  the  United  States: — As  the  power  to  tax 
is  the  power  to  destroy,  to  admit  the  power  of  the  Federal  Gov- 
ernment to  tax  the  States,  or  their  instrumentalities  of  govern- 
ment, would  completely  subordinate  the  States  to  the  Federal 
Government.  It  is,  therefore,  well  established  that  it  is  not  with- 
in the  power  of  the  United  States  to  tax  a  state  or  its  govern- 
mental instrumentalities,  and,  as  to  tax  a  bond  issued  by  a  state 
or  one  of  its  subdivisions  is  to  tax  a  governmental  function,  it 
is  well  established  that  the  power  to  tax  such  obligations  is  not 
vested  in  the  United  States.^** 

"'  Talbot  V.  Silver  Bow  County,  139  U.  S.  438. 

People  V.  Moore,  1  Idaho  504. 

Silver  Bow  County  v.  Davis,  6  Mont.  306. 

First  Nat.  Bank  v.  Allbright,  13  N.  M.  514;  86  Pac.  548. 

Salt  Lake  City  Nat.  Bank  v.  Golding,  2  Utah  1. 
"Collector  v.  Day,  11  Wall.  (U.  S.)  113. 

TJ.  S.  V.  Eailroad  Co.,  17  Wall.   (U.  S.)   322. 

Pollock  V.  Farmers'  L.  &  T.  Co.,  157  U.  S.  429;  158  U.  S.  601. 


6  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAI.  BONDS 

16.  Taxation  by  the  Territories: — As  the  territories  of  the 

United  States  are  not  sovereign  states,^"  they  have  no  powers 
of  taxation  except  to  the  extent  such  powers  are  delegated  to 
them  by  the  United  States.  Hence,  it  follows  that  the  power  of 
taxation  in  a  territory  is  subject  to  the  same  limitations  imposed 
upon  the  taxing  powers  of  the  Federal  Government.  The  United 
States  cannot  delegate  to  a  territory  powers  which  it  does  not 
itself  possess;  consequently,  as  the  bonds  of  the  States  and  of 
their  municipalities  and  governmental  agencies  are  exempt  from 
taxation  by  the  United  States,  in  the  opinion  of  the  authors,  it 
is  not  within  the  power  of  a  territory  to  tax  such  bonds. 

17.  Taxation  by  the  States: — ^While  a  state  may  exempt 
state  or  municipal  bonds  from  taxation,  unless  prohibited  by  the 
constitution  from  doing  so,*^  it  may  refuse  to  grant  such  an 
exemption.  It  is  well  settled  that,  in  the  absence  of  constitutional 
limitations,  the  power  of  taxation  extends  to  and  embraces  the 
bonds  of  the  state  and  its  municipalities.*^ 

18.  In  levying  a  tax  upon  such  bonds,  however,  the  state  may 
not  impair  the  obligation  of  the  contract  with  the  holders  of  the 
bonds  and  the  coupons  representing  the  interest  thereon.^" 
Thus  the  Supreme  Court  of  the  United  States,  in  the  case  of 
Murray  v.  Charleston,^*  held  that  the  State  could  not  require 
the  City  of  Charleston  to  deduct  the  tax  from  the  interest  which 
it  paid  upon  bonds  held  by  a  non-resident.  In  a  later  decision 
the  same  court  indicated  that  this  rule  also  applies  when  the 
bonds  are  held  by  residents  of  the  state.  In  this  decision  the 
court  said,  ''Whatever  may  be  the  wise  rule — looking  at  the 
necessity  in  a  commercial  country  for  its  prosperity  that  its  pub- 
lic credit  should  never  be  impaired — as  to  the  taxability  of  the 
public  securities,  it  is  settled  that  any  tax  levied  upon  them  can- 
not be  withheld  from  the  interest  payable  thereon.     Such  was 

"  Bank  v.  Yankton  County,  101  U.  S.  129. 

Talbot  V.  Silver  Bow  County,  139  U.  S.  438. 
'•  Post.  Sec.  22. 
'"  People  V.  Home  Ins.  Co.,  29  Cal.  533. 

Champaign  County  Bank  v.  Smith,  7  Ohio  St.  42. 

State  Nat.  Bank  v.  Memphis,  116  Tenn.  641 ;  94  S.  W.  606, 

Commonwealth  v.  Maury,  82  Va.  883 ;  1  S.  E.  185. 
"  State  Tax  on  Foreign  held  bonds,  15  Wall.  (U.  S.)  300. 
"  96  U.  S.  432. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  7 

the  decision  of  this  court  in  Murray  v.  Charleston.  "^^  More 
recently,  however,  the  constitutionality  of  a  statute  requiring  pri- 
vate domestic  corporations  to  deduct  the  tax  from  the  interest 
paid  to  the  holders  of  the  bonds  of  such  corporations  was  sus- 
tained by  the  Supreme  Court  of  the  United  States,  so  far  as  it 
related  to  bonds  held  by  residents  of  the  state.^®  It  is,  there- 
fore, questionable  to  what  extent  the  language  quoted  may  be 
regarded  as  a  correct  statement  of  the  decision  in  Murray  v. 
Charleston. 

19.  The  Supreme  Court  of  the  United  States  has,  however, 
definitely  held  that  such  a  tax  cannot  be  applied  to  coupons  sep- 
arated from  the  bonds  to  which  they  were  originally  attached, 
without  impairing  the  obligation  of  the  contract  with  the  holder 
of  the  coupons.^^  It  is  apparent,  that,  under  such  circum- 
stances, the  burden  of  the  tax  imposed  upon  the  bond  would  fall, 
not  upon  the  bondholder,  but  upon  the  holder  of  the  coupons. 
Moreover,  if  the  right  to  levy  such  a  tax  be  recognized,  the  state 
could  entirely  destroy  the  contract  made  with  the  holder  of 
the  coupons  by  levying  such  taxes  as  would  equal  the  interest 
borne  by  the  bond.  This  would  result  in  a  total  repudiation  of 
the  contract  with  the  holder  expressed  on  the  face  of  the  coupons. 

20.  The  bonds  of  other  states  or  of  the  municipalities  of 
other  states  may  be  taxed  if  located  within  the  limits  of  the  state 
levying  the  tax,  or  owned  by  residents  of  that  state.  Statutes 
levying  such  taxes  do  not  violate  the  Federal  Constitution,  as  the 
several  states,  in  ratifying  that  instrument,  did  not  enter  into  a 
covenant  preventing  one  state  from  taxing  the  public  securities 
issued  by  another  state,  her  counties  or  municipalities.^® 

21.  The  state  may  also  authorize  its  political  subdivisions  to 
tax  public  securities,  including  the  bonds  of  the  subdivision  levy- 
ing the  tax.^^ 

"*  Hartman  v.  Greenhow,  102  U.  S.  672. 

••  Bells  Gap  E.  R.  Co.  v.  Pennsylvania,  134  U.  S.  232. 

"  Hartman  v.  Greenhow,  102  U.  S.  672. 

••  Bonaparte  v.  Tax  Court,  104  U.  S,  592. 

Webb  V.  Burlington,  28  Vt.  188. 

Appeal  Tax  Court  v.  Patterson,  50  Md.  354 ;  aff.  104  U.  S.  592. 
-  Jenkins  v.  Charleston,  5  S.  C.  393 ;  rev.  96  IT.  S.  432. 

Bank  v.  Russellville,  133  Ky.  637;  118  S.  W.  921. 


8  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

IV.    EXEMPTION  OF  STATE  AND  MUNICIPAL 

BONDS. 

22.  Power  to  Exempt  from  Taxation: — In  the  absence  of 
constitutional  limitation,  the  legislature  may  exempt  bonds  of  the 
state  and  of  its  municipalities  from  taxation.  Under  such  cir- 
cumstances the  power  of  the  legislature  to  select  the  subjects  of 
taxation  is  plenary  and  it  may,  therefore,  refrain  from  taxing 
such  securities.*" 

23.  Constitutional  Limitations: — The  state  constitutions 
usually  prohibit  the  legislatures  from  exempting  property  from 
taxation  by  special  laws.  Whether  such  a  prohibition  applies  to 
special  laws  exempting  state  or  municipal  bonds  from  taxation, 
apparently,  has  never  been  decided.  It  is  by  no  means  certain 
that  it  applies  to  such  laws."  In  any  event,  such  a  restric- 
tion affects  merely  the  manner  of  conferring  the  exemption  with- 
out in  any  manner  affecting  the  power  of  the  legislature  to 
grant  it. 

24.  EfiFect  of  Uniformity  Clause: — The  power  to  grant  ex- 
emptions, however,  is  also  generally  limited  by  constitutional 
provisions  requiring  taxation  to  be  uniform  upon  all  subjects  of 
taxation  and  specifying  the  classes  of  property  which  may  be 
exempted  by  the  legislature  from  such  taxation.  A  typical  re- 
striction of  this  nature  is  contained  in  Art.  2,  Sec.  28,  of  the 
Constitution  of  Tennessee,  reading  as  follows: 

* '  All  property  real,  personal  or  mixed  shall  be  taxed ;  but  the 
legislature  may  except  such  as  may  be  held  by  the  State,  by 
counties,  cities  or  towns  and  used  exclusively  for  public  or  cor- 
poration purposes,  and  such  as  may  be  held  and  used  for  pur- 
poses purely  religious,  charitable,  scientific,  literary,  or  educa- 
tional and  shall  except  one  thousand  dollars  worth  of  personal 
property  in  the  hands  of  each  taxpayer,  and  the  direct  product 
of  the  soil  in  the  hands  of  the  producer  and  his  immediate  ven- 
dee. All  property  shall  be  taxed  according  to  its  value,  that 
value  to  be  ascertained  in  such  manner  as  the  Legislature  shall 

"  Ante.  See.  4. 

♦'  Post.  Sees.  24-45. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  9 

direct,  so  that  taxes  shall  be  equal  and  uniform  throughout  the 
state." 

When  the  constitution  of  the  state  contains  such  a  provision, 
is  it  within  the  power  of  the  legislature  to  exempt  the  bonds  of 
the  state  and  its  municipalities  from  taxation?  This  question 
has  been  raised  in  several  states,  and,  in  most  instances,  has  been 
answered  affirmatively. 

25.  Tennessee  Rule: — The  constitutional  provision  quoted 
was  construed  recently  by  the  Supreme  Court  of  Tennessee  as 
permitting  the  exemption  from  taxation  of  bonds  of  the  state.*^ 
This  decision  is  based  upon  the  fact  that  the  constitutional 
restriction  is  imposed  upon  the  taxing  power,  whereas  the  bonds 
are  issued  by  virtue  of  a  separate  and  distinct  sovereign  power, 
i.  e.  the  power  to  contract.  In  pointing  out  this  distinction  the 
court  said,  * '  That  the  inherent  power  of  a  state  to  make  contracts 
with  reference  to  its  credit  is  distinct  from  the  inherent  power  of 
taxation,  is,  we  think,  not  to  be  questioned.  Both  exist  without 
direct  constitutional  authority,  but,  further  than  that,  the  latter 
is  in  aid  of  and  maintains  the  former.  They  are  wholly  distinct 
attributes  of  sovereignty ;  the  one  a  right  optional  with  the  state 
and  those  with  whom  it  contracts;  the  other  compulsory  and  a 
pecuniary  burden  upon  the  owner  of  property.  Because  of  this 
distinction  the  wisdom  of  freedom  from  restraint  of  the  one  and 
the  necessity  for  limitation  upon  the  other  is  clearly  manifest. 
Save  in  two  particulars  not  pertinent  to  this  question,  further 
than  recognizing  the  right  of  the  state  to  contract  its  credit,  our 
constitution  contains  no  limitation  upon  this  vital  power.  Em- 
powered as  it  unquestionably  is,  it  is  difficult  to  see  upon  what 
ground  it  is  possible  to  maintain  the  impotency  of  the  state  to 
incorporate  in  its  securities  the  provision  here  sought  to  be  held 
invalid.  *  *  *  Furthermore  we  are  of  the  opinion  that  the  bonds 
of  the  state  do  not  constitute  property  within  the  meaning  of 
that  term  as  used  in  the  taxation  clause  of  the  constitution,  but 
they  are  to  be  regarded  as  evidence  of  a  debt  for  money  secured 
for  and  devoted  to  the  public  use,  and  as  such,  are  to  be  consid- 
ered instrumentalities  of  government  upon  which  it  cannot  be 
contended  that  the  legislature  is  mandatorily  required  to  impose 

*»  Foster  v.  Roberts,  142  Tenn.  350;  219  S.  W.  729. 


10  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

a  tax,  or  which,  because  of  the  language  of  the  constitution,  can- 
not be  exempted  from  taxation. ' ' 

26.  Louisiana  Rule: — Likewise,  the  Supreme  Court  of 
Louisiana  held  that  Art.  203  of  the  Constitution  of  1879  of  that 
state  did  not  require  the  taxation  of  bonds  of  the  municipalities 
of  the  state.*^  The  constitutional  provisions  involved  in  the 
decision  read  as  follows : 

' '  Art.  203 :  Taxation  shall  be  equal  and  uniform  throughout 
the  territorial  limits  of  the  authority  levying  the  tax,  and  all 
property  shall  be  taxed  in  proportion  to  its  value,  to  be  ascer- 
tained as  directed  by  law ; ' '  etc. 

"Art.  207:  The  following  property  shall  be  exempt  from 
taxation  and  no  other,"  etc. 

The  Court  pointed  out  that  municipal  bonds  had  never  there- 
tofore been  taxed  in  Louisiana,  although  the  earlier  constitutions 
of  the  state  had  contained  similar  provisions  and  reached  the 
conclusion  that  the  mandate  of  the  constitution  that  "all  prop- 
erty shall  be  taxed"  was  not  intended  to  apply  to  securities  of 
municipalities  or  of  the  state. 

27.  Georgia  Rule: — The  Constitution  of  Georgia  of  1877 
declared  "All  taxation  shall  be  uniform  upon  the  same  class  of 
subjects,  and  ad  valorem  on  all  property  subject  to  be  taxed 
within  the  territorial  limits  of  the  authority  levying  the  tax." 
The  Supreme  Court  of  Georgia  held  that  this  constitutional  man- 
date did  not  require  the  levy  of  taxes  upon  the  bonds  of  munici- 
palities of  the  state.**  "A  municipal  bond,"  said  the  court, 
"is  the  means  resorted  to  by  the  governmental  officers  to  effec- 
tuate the  powers  of  government.  *  *  *  It  is  well  settled,  as  a 
general  rule,  that  public  property  and  the  various  instrumen- 
talities of  government  *  *  *  are  not  subject  to  taxation.  This 
immunity  is  in  almost  all  jurisdictions  confirmed  by  some  express 
constitutional  or  statutory  grant  of  exemption,  but  it  is  by  no 
means  dependent  thereon,  for  it  rests  upon  the  most  fundamen- 
tal principles  of  government,  being  necessary  in  order  that  the 

"  State  ex  rel.  Da  Ponte  v.  Assessors,  35  La.  Ann.  651. 

State  V.  Assessors,  111  La.  982 ;  36  So.  91. 
"  Penick  v.  Foster,  129  Ga.  217 ;  58  S.  E.  773. 


TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAIi  BONDS  11 

functions  of  government  may  not  be  unduly  impeded,  and  that 
the  government  be  not  forced  into  the  inconsistency  of  taxing 
itself  in  order  to  raise  money  to  pay  over  to  itself,  which  money 
could  be  raised  only  by  other  taxation.  *  *  *  The  conclusion 
reached  by  us,  therefore,  is  that  the  municipality  being  a  mere 
political  subdivision  of  the  state  to  which  is  delegated  a  certain 
portion  of  the  powers  of  government,  a  bond  issued  by  it  is 
merely  a  governmental  instrumentality ;  that  it  is  not  taxable  by 
the  force  of  the  Constitution  itself,  and,  if  taxable  at  all,  it  is  only 
so  when  [taxed  by]  the  General  Assembly  either  in  express  terms 
or  in  such  language  that  no  other  conclusion  can  be  reached  than 
that  such  was  the  intention  of  that  body." 

The  reasoning  of  the  court  is  especially  applicable  to  bonds 
of  the  state  and  it  is  significant  that  the  court  cited  with  approval 
a  decision,  rendered  prior  to  the  adoption  of  the  constitutional 
provision  above  quoted,  holding  that  an  act  levying  taxes  upon 
"the  taxable  property  of  this  state"  would  be  construed  not  to 
embrace  state  bonds  owned  by  a  citizen  and  resident  of  the 
state.*^ 

28.  North  Carolina  Rule: — The  power  of  the  legislature  to 
exempt  bonds  of  the  state  from  taxation  has  been  sustained  in 
North  Carolina  notwithstanding  the  provisions  of  Art.  5,  Sec.  2 
of  the  constitution,  providing  that  "laws  shall  be  passed,  taxing 
by  a  uniform  rule,  all  moneys,  credits,  investments  in  bonds," 
etc.*®  The  only  ground  assigned  by  the  court  for  this  decision 
was  that  "the  uniform  and  well  settled  policy  of  the  state — cer- 
tainly since  1852,  and  its  power  to  do  so  seems  never  to  have  been 
doubted  or  questioned — has  been  to  exempt  its  own  bonds  and 
certificates  of  debt  from  taxation." 

29.  South  Carolina  Rule: — The  constitution  of  South  Caro- 
lina contains  the  following  provisions : 

"Art.  10,  Sec.  1:  The  General  Assembly  shall  provide  by 
law  for  a  uniform  and  equal  rate  of  assessment  and  taxation  *  *  * 
excepting  such  property  as  may  be  exempted  by  law  for  munici- 
pal, educational,  literary,  scientific,  religious  and  charitable  pur- 
poses. ' ' 

*•  Miller  v.  Wilson,  60  Ga.  505. 

"Pullen  V.  Corporation  Comm'n,  152  N,  C.  548;  68  S.  E.  155. 


12  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL.  BONDS 


"Art.  10,  Sec.  4:  There  shall  be  exempted  from  taxation 
all  county,  township  and  municipal  property  used  exclusively  for 
public  purposes  and  not  for  revenue. ' ' 

These  constitutional  restrictions,  however,  have  been  con- 
strued as  permitting  the  exemption  of  municipal  bonds  from  tax- 
ation. An  exemption  from  taxation  of  county  bonds  was  held  to 
be  for  a  municipal  purpose,  within  the  meaning  of  Sec.  1  of  Art. 
10  above  quoted.*^  The  court  in  this  decision  also  indicated 
that  such  bonds  fall  within  the  classes  of  property  mentioned  in 
Sec.  4  of  that  article  of  the  constitution,  saying,  in  this  connec- 
tion, "In  so  far  as  these  bonds  may  be  called  property  before 
delivery  to  the  purchasers,  they  are  municipal  or  county  property 
for  the  exclusive  use  of  the  county,  and  would  fall  within  the 
non-taxable  class  named  in  Sec.  4.  A  delivery  of  them  for  the 
purpose  for  which  they  were  issued  ought  not  to  change  them 
from  non-taxable  to  taxable  property,  as  a  sale  and  delivery  of 
them  is  the  only  method  by  which  they  can  be  used.  The  bonds 
are  to  be  converted  into  money  for  the  exclusive  use  of  the 
county  for  an  admittedly  public  and  corporate  purpose.  They 
merely  represent  taxes  which  the  county  must  pay  in  the  future 
during  a  series  of  years,  thus  relieving  the  county  of  the  neces- 
sity to  pay  at  once  by  an  enormous  single  tax.  The  bonds  are 
but  the  substitute  for  the  public  burden  discharged  by  the  pur- 
chasers' money.  If  they  do  not  become  property  until  their  issue 
and  delivery  according  to  the  law  which  creates  them,  that  same 
law  affixes  to  them  in  their  creation  the  quality  or  characteristic 
of  being  non-taxable.  To  tax  them  would,  as  it  were,  tax  the 
taxes  they  represent."  The  same  court  subsequently  sustained 
an  exemption  of  state  bonds  from  taxation,  citing  the  decision 
above  referred  to  as  its  authority.** 

30.  Oklahoma  Rule: — The  Constitution  of  Oklahoma  pro- 
vides in  Art.  5,  Sec.  50,  "The  Legislature  shall  pass  no  law  ex- 
empting any  property  within  this  state  from  taxation,  except  as 
otherwise  provided  in  this  constitution." 

The  constitution  contains  no  provision  for  the  exemption  of 
state  or  municipal  bonds.  The  courts  of  that  state,  however,  have 
held  that  the  constitutional  provision  above  quoted  does  not  pro- 

*'  Chester  County  v.  White  Bros.,  70  S.  C.  433 ;  50  S.  E.  28. 
"  Nat.  Union  Bank  v.  Neil,  106  S.  C.  173 ;  90  S.  E.  744. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  13 

hibit  the  state  from  exempting  state  bonds  from  taxation,  on  the 
ground  that  such  bonds  being  an  exercise  of  the  borrowing  power 
and  a  use  of  the  state 's  credit,  do  not  constitute  property  within 
the  meaning  of  that  provision.*'' 

31.  South  Dakota  Rule: — Under  the  provisions  of  Art.  11, 
Sec.  7,  of  the  Constitution  of  South  Dakota,  the  legislature  is 
without  power  to  exempt  from  taxation  property  other  than  such 
classes  of  property  as  are  mentioned  in  the  Constitution.  The 
word  "property,"  however,  as  used  in  this  section  of  the  consti- 
tution, is  construed  by  the  Supreme  Court  of  that  state  as  not 
including  public  securities  of  the  state.  In  a  recent  case  con- 
struing this  section  of  the  constitution,  the  court  said,  "If  we 
were  to  consider  the  bonds  before  us  merely  as  property  and 
disregarded  the  purpose  for  which  they  were  issued — disregard 
the  fact  that  they  are  governmental  instrumentalities — we  should 
hold  them  taxable,  but,  when  we  regard  them,  not  merely  as 
property,  but  as  governmental  instrumentalities  of  a  sovereign 
state,  a  superior  intervening  public  policy,  grounded  upon  one 
of  the  sovereign  powers  of  the  state,  compels  us  to  the  conclusion 
(there  being  no  express  language  in  the  Constitution  to  the  con- 
trary) that  the  public  securities  of  a  state  and  of  its  counties  and 
municipalities  were  not  intended  to  be  included  either  in  the 
term  'property'  or  in  the  term  'bond'  as  such  terms  are  used  in 
that  article  of  our  constitution  relating  to  taxation. '  '^" 

32.  Missouri  Rule: — The  opposite  conclusion  was  reached 
by  the  Supreme  Court  of  Missouri  under  the  following  constitu- 
tional provisions: 

"Art.  10,  Sec.  6:  The  property  real  and  personal  of  the 
state,  counties  and  other  municipal  corporations  *  *  *  shall  be 
exempt  from  taxation." 

"Art.  10,  Sec.  7:  All  laws  exempting  property  from  tax- 
ation, other  than  the  property  above  enumerated,  shall  be 
void."" 

**  In  re  Assessment   of   First   Nat.  Bank  of   Chickasha,   58   Okla.    508 ; 
160  Pac.  469. 

In  re  First  State  Bank  of  Oklahoma  City,  171  Pac.  864. 
"Nat.  Surety  Co.  v.  Starkey,  41  S.  Dak.  356;  170  N.  W.  582, 
"  State  V.  Gordon,  268  Mo.  713 ;  188  S.  W.  160. 

Vice  V.  Kirksville,  280  Mo.  348;  217  S.  W.  77. 


14  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

33.  Montana  Rule: — In  Montana  also  this  conclusion  was 
reached  under  a  constitutional  provision  declaring  "the  word 
'property'  as  used  in  this  article,  is  hereby  declared  to  include 
moneys,  credits,  bonds,  stocks,  franchises,  and  all  matters  and 
things  (real,  personal  and  mixed)  capable  of  private  owner- 
ship."^- In  construing  this  provision  of  the  constitution  in 
a  case  involving  taxation  of  bonds  of  the  state,  the  court  used 
the  following  language:  "We  are  not  unmindful  of  the  fact  that 
authorities  may  be  found  which  hold  that,  notwithstanding  the 
plain  letter  of  the  law,  there  is  a  presumption  in  favor  of  the 
exemption  of  public  securities  from  taxation,  based  upon  the 
theory  that  public  policy  requires  it;  but  in  view  of  the  history 
of  our  tax  legislation  before  and  since  the  adoption  of  the  con- 
stitution, that  doctrine  cannot  prevail  in  this  jurisdiction."'^ 

34.  Exceptions  to  Rule  Discussed: — ^While,  as  has  been 
seen  in  North  Carolina,  the  courts  have  held  that  bonds  of  the 
state  are  not  taxable,  the  Supreme  Court  of  that  state  has  ex- 
pressed a  doubt  whether  bonds  of  counties  and  municipalities  of 
the  state  can  lawfully  be  exempted  from  taxes  other  than  taxes 
of  the  municipality^  issuing  the  bonds.^*  These  decisions  in 
Missouri,  Montana  and  North  Carolina,  however,  are  exceptions 
to  the  general  rule  and  the  Montana  decision  referred  to  can, 
perhaps,  be  distinguished  on  the  ground  that,  as  state  and  mu- 
nicipal bonds  had  always  been  taxed  in  that  state,  the  constitu- 
tion should  be  construed  as  continuing  that  policy,  in  the  ab- 
sence of  language  clearly  indicating  an  intention  to  reverse  it. 

35.  Suixunary  of  Decisions: — It  will  be  observed  that  in  all 
states  in  which  the  question  has  been  raised,  with  the  exception 
of  Missouri  and  Montana,  it  has  been  held  that  a  constitutional 
provision  requiring  all  property  to  be  taxed  does  not  require  the 
taxation  of  bonds  of  the  state.  In  many  states,  moreover,  in 
which  this  question  has  not  been  passed  upon  by  the  courts,  the 
legislatures  have  adopted  the  same  construction  of  the  constitu- 
tion and  have  exempted  bonds  of  the  state  from  taxation.  Under 
constitutional  provisions  similar  to  those  involved  in  the  deci- 

"  Const.  Art.  12,  Sec.  17. 

"  Cruse  V.  Fischl,  55  Mont.  258 ;  175  Pac.  878. 

"Commissioners  v.  Webb,  160  N.  C.  594;  76  S.  E.  552. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  15 

sions  referred  to,  the  legislatures  of  Pennsylvania,'^  Ne- 
braska,^® Indiana,"  Utah,'"'*  and  West  Virginia*^"  have  passed 
statutes  exempting  bonds  of  those  states  from  taxation. 

36.  The  courts  of  the  several  states  which  have  held  that 
bonds  of  the  state,  or  its  municipalities,  may  be  exempted  from 
taxation,  notwithstanding  a  constitutional  mandate  that  all  prop- 
erty be  taxed,  have  reached  this  conclusion  by  different  processes 
of  reasoning.  In  Louisiana,  for  instance,  the  word  "property" 
contained  in  the  constitution  was  construed  not  to  include  mu- 
nicipal bonds,  or,  in  other  words,  that  municipal  bonds  were  not 
property  within  the  meaning  of  that  term  as  used  in  the  Con- 
stitution."" 

37.  In  Oklahoma,®^  and  South  Dakota,®^  the  courts 
have  reached  the  conclusion  that  a  limitation  upon  the  power  of 
taxation  does  not  affect  the  sovereign  power  to  contract,  and  the 
state,  in  the  exercise  of  that  power,  may  contract  for  the  exemp- 
tion of  its  bonds  from  taxation. 

38.  The  Supreme  Court  of  Tennessee  adopts  both  of  these 
doctrines,  holding  that  the  bonds  are  issued  by  virtue  of  a  sov- 
ereign power,  other  than  the  taxing  power,  and,  moreover,  such 
bonds  do  not  constitute  property  within  the  meaning  of  that 
term  as  used  in  the  taxing  clauses  of  the  constitution."^ 

39.  The  South  Carolina  decision  that  municipal  bonds  may 
be  exempted  from  taxation  turned  upon  the  language  of  the  con- 
stitution. The  constitution  expressly  permitted  the  exemption  of 
property  from  taxation  for  municipal  purposes  and  the  court 
held  that  the  exemption  bestowed  upon  county  bonds  was  granted 
for  a  municipal  purpose."*    An  exemption  of  the  state's  bonds 

"Purdons  Digest  Vol.  7,  Taxes,  Sec.  1. 

"Revised  Stats.  1913,  Sec.  6313. 

"Laws  1919,  Ch.  59. 

"  Laws  1911,  Ch.  8. 

'•Laws  Extra  Sess.  1919,  Chap.  10. 

*"  State  ex  rel.  Da  Ponte  v.  Assessors,  35  La.  Ann.  651. 

State  V.  Assessors,  111  La.  982;  36  So.  91. 
•'  In  re  Assessment  of  First  Nat.  Bank,  58  Okla.  508 ;  160  Pac.  469. 

In  re  First  State  Bank  of  Oklahoma  City,  171  Pac.  864. 
"Nat.  Surety  Co.  v.  Starkey,  41  S.  D.  356;  170  N.  W.  582. 
"Foster  v.  Roberts,  142  Tenn.  350;  219  S.  W.  729. 
•*  Chester  County  v.  White  Bros.  70  S.  C.  433 ;  50  S.  E.  28, 


16  TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

from  taxation,  however,  was  also  sustained,  the  ground  for  the 
decision  not  being  stated.®' 

40.  It  will  be  observed  that  the  courts,  in  these  decisions, 
have  not  discriminated  between  state  and  municipal  bonds.  There 
is,  indeed,  no  distinction  for  this  purpose  between  a  state  and  its 
municipalities.  It  has  many  times  been  held  by  the  Supreme 
Court  of  the  United  States,  that,  so  far  as  exemptions  from  tax- 
ation are  concerned,  counties,  cities,  towns  and  other  political 
subdivisions  are  to  be  regarded  as  mere  instrumentalities  of  the 
state  in  which  they  are  situated.*"^ 

41.  It  has,  indeed,  been  held  in  North  Carolina  that  bonds 
of  a  drainage  district  having  no  power  to  tax  ad  valorem,  are 
taxable,®^  and  in  a  dictum  in  the  same  case  the  court  ex- 
pressed some  doubt  whether  municipal  bonds  can  lawfully  be 
exempted  from  taxation  other  than  local  taxation.  This  decision, 
however,  is  opposed  to  the  great  weight  of  authority.  With  this 
single  exception  the  courts  have  applied  the  same  construction 
of  the  constitutional  provisions  to  municipal  as  well  as  to  state 
bonds. 

42.  It  would  seem  that  all  of  these  decisions  are  based  upon 
the  same  principle.  It  must  be  borne  in  mind  that  the  question 
is  one  of  construction.  The  question  before  the  court  in  each 
instance  was  whether  the  provisions  of  the  constitution  requiring 
all  property  to  be  taxed  were  intended  to  apply  to  the  bonds  of 
the  state  and  its  municipalities. 

Such  a  provision  is  not  free  from  ambiguity.  It  clearly  is 
not  to  be  construed  as  requiring  the  taxation  of  property  of  the 
Federal  Government  or  its  instrumentalities  of  government,®^ 
nor  is  it  to  be  construed  as  requiring  the  levy  of  taxes  upon  prop- 

••  Nat.  Union  Bank  v.  Neil,  106  S.  C.  173 ;  90  S.  E.  744. 
"United  States  v.  Railroad  Co.,  17  Wall.  (U.  S.)  322. 

Mercantile  Bank  v.  New  York,  121  U.  S.  138. 

Pollock  V.  Farmers  L.  &  T.  Co.,  157  U.  S.  429;   158  U.  S.  601. 

See  also  Grether  v.  Wright,  75  Fed.  742. 
"  Commissioners  v.  Webb,  160  N.  C.  594 ;  76  S.  E.  552. 
"Andrews  v.  Auditor,  28  Gratt.  (Va.)  115. 

People  V.  McCreery,  34  Cal.  432,  456. 

State  ex  rel.  Da  Ponte  v.  Assessors,  35  La.  Ann.  651. 

Nat.  Surety  Co.  v.  Starkey,  41  S.  D.  356 ;  170  N.  W.  582. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  17 

erty  owned  by  the  state.""  Interpretation,  therefore,  is  nec- 
essary, and,  in  interpreting  the  provision,  the  court  may  refer 
to  other  provisions  of  the  constitution  and  take  into  considera- 
tion the  policy  of  the  state  or  the  events  or  conditions  which 
were  instrumental  in  causing  the  incorporation  of  such  a  pro- 
vision in  the  constitution.  It  is,  therefore,  proper  for  the  court 
to  inquire  whether  a  constitutional  provision,  prohibiting  dis- 
crimination between  citizens  in  the  levy  of  taxes,  was  intended  to 
require  the  taxation  of  operations  of  government. 

43.  The  borrowing  of  money  by  a  state  or  one  of  its  munici- 
palities is  an  exercise  of  a  governmental  function.^"  It  is  an 
exercise  of  the  contracting  power.  To  levy  a  tax  upon  the  evi- 
dence of  the  exercise  of  this  power  is  to  tax  the  power  itself.'^ 
The  court  will  not  without  strong  reason  hold  that  a  state  must 
tax  its  operations  of  government  and,  hence,  whether  it  sustains 
the  exemption  on  the  ground  that  the  bonds  are  not  property 
within  the  meaning  of  the  constitutional  provision  under  consid- 
eration, or  on  the  ground  that  the  bonds  constitute  an  exercise 
of  the  contracting  power,  the  reason  underlying  the  decision  is 
that  the  constitution  is  not  to  be  construed  as  requiring  the  tax- 
ation of  the  operations  of  government  or  the  sovereign  powers 
of  the  state ;  that  to  tax  such  bonds  is  to  tax  a  sovereign  power  of 
the  state,  the  contracting  power,  hence,  to  tax  the  state  itself. 

44.  Thus  the  Supreme  Court  of  Georgia,  in  reaching  the 
conclusion  that  municipal  bonds  were  not  properly  within  the 
meaning  of  the  taxation  clauses  of  the  constitution  of  that  state, 
took  into  consideration  the  fact  that  a  municipal  corporation  is 
"a  mere  political  subdivision  of  the  state  to  which  is  delegated 
a  certain  portion  of  the  powers  of  government"  and  that  "a  bond 
issued  by  it  is  merely  a  governmental  instrumentality, ' '  and  held 
that  such  bonds  were  exempt  from  taxation  in  order  "that  the 
government  be  not  forced  into  the  inconsistency  of  taxing  it- 
self."" 

"•Nashville  v.  Bank  of  Tennessee,  1  Swan.  (Tenn.)  269. 

People  V.  Doe,  36  Cal.  220. 

People  V.  Salomon,  51  111.  37. 

People  V.  McCreery,  34  Cal.  432,  456. 
"  Mercantile  Bank  v.  New  York,  121  U.  S.  138,  162. 
"Weston  V.  Charleston,  2  Pet.  (U.  S.)  449. 
«  Penick  v.  Foster,  129  Ga.  217 ;  58  S.  E.  773. 


18  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 


45.  It  may  be  stated  as  the  general  rule,  supported  by  the 
great  weight  of  authority,  that,  in  the  absence  of  constitutional 
provisions  expressly  prohibiting  the  exemption  of  state  or  mu- 
nicipal bonds  from  taxation,  it  is  within  the  power  of  the  legis- 
lature to  exempt  such  bonds,  and  constitutional  provisions,  re- 
quiring all  property  to  be  taxed,  will  not  be  construed  as  apply- 
ing to  such  bonds. 


V.  CONTRACTS  FOR  EXEMPTION. 

46.  Contracts  by  the  United  States: — The  Constitution  of 
the  United  States  does  not  expressly  prohibit  the  Federal  Gov- 
ernment from  impairing  the  obligation  of  contracts.  The  Four- 
teenth Amendment,  prohibiting  the  States  from  passing  laws  im- 
pairing contractual  obligations,  applies  only  to  the  States.  But 
the  Fifth  Amendment  prohibits  the  United  States  from  depriv- 
ing any  person  of  property  without  due  process  of  law,  and  this 
amendment  has  been  construed  as  prohibiting  the  Federal  Gov- 
ernment from  impairing  contractual  obligations.'^^ 

47.  A  contract  made  with  the  United  States  for  the  exemp- 
tion of  lands  from  taxation  has  been  held  a  property  right  pro- 
tected from  impairment  by  the  Fifth  Amendment,^*  and,  in 
the  opinion  of  the  authors,  therefore,  when  bonds  are  issued  by 
the  United  States,  under  such  circumstances,  that  a  contract 
arises  for  the  exemption  of  such  bonds  from  taxation,  it  is  not 
within  the  power  of  the  Federal  Government  thereafter  to  sub- 
ject such  bonds  to  taxation.  Such  a  contract  will  arise  under 
the  same  circumstances  which  would  result  in  a  contract  for  an 
exemption  from  taxation  on  the  part  of  a  state.^^ 

48.  Contracts  by  the  Territories: — As  the  taxing  power  of 

the  territories  is  delegated  to  them  by  the  Federal  Government, 
the  same  principles  would  seem  to  apply,  and  the  authors  are  of 

"Hepburn  v.  Griswold,  8  WaU.  (U.  S.)  603. 

Sinking  Fund  Cases,  99  U.  S.  700. 
"  Choate  v.  Trapp,  224  IT.  S.  665. 

English  V.  Eichardson,  224  U.  S.  680. 

Morrow  v.  United  States,  243  Fed.  854. 
"  Post.  Sees.  49-52. 


TAXATION  OF  FEDERAL.,  STATE  AND  MUNICIPAL  BONDS  19 

the  opinion  that  a  territory,  likewise,  cannot  impair  a  contract 
for  the  exemption  of  bonds  from  taxation. 

49.  Contracts  by  the  States: — When  state  or  municipal 
bonds  are  issued  under  the  provisions  of  a  statute  expressly  de- 
claring that  such  bonds  shall  be  exempt  from  taxation,  a  contract 
arises  which  cannot  be  impaired  by  any  subsequent  act  of  the 
state  or  municipality.^"  Neither  by  the  repeal  of  the  statute 
granting  the  exemption,  nor  by  a  constitutional  amendment,  can 
the  state  thereafter  subject  the  bonds  to  taxation. ^^ 

50.  It  has  also  been  held  that  municipal  bonds,  issued  at  a 
time  when  a  general  statute  was  in  force,  which  exempted  such 
bonds  from  taxation,  are  likewise  exempted  from  taxation  by  a 
contract  which  cannot  be  impaired  by  the  state.''^  But,  where 
bonds  are  issued  prior  to  the  passage  of  an  act  exempting  them 
from  taxation,  the  exemption  is  a  mere  gratuity  and  may  be 
withdrawn  at  any  time  at  the  pleasure  of  the  state.^'' 

51.  These  rules  seem  to  be  sound.  When  bonds  are  issued 
at  a  time  when  a  general  statute  is  in  force  exempting  them  from 
taxation,  they  are  certainly  purchased  upon  the  understanding 
that  they  will  be  free  from  taxation  and  are  sold  at  a  higher  price 
for  that  reason.  Moreover,  if  general  statutes  authorizing  the 
levy  of  taxes,  etc.,  enter  into  and  become  part  of  the  contract, 
as  has  been  often  held,**'  upon  what  theory  are  general  statutes 
granting  exemptions  from  taxation  to  be  excluded  ?  When,  how- 
ever, bonds  are  sold  and  delivered  before  such  a  statute  has  been 
passed,  the  contract  is  fixed  at  the  time  of  the  delivery  of  the 
bonds  and  a  statute  subsequently  passed  cannot  become  a  part 
thereof.  What  would  be  the  consideration  for  such  an  exemp- 
tion ?  It  is  a  mere  gratuity,  so  far  as  concerns  bonds  issued  prior 
to  the  passage  of  the  statute  granting  the  exemption,  and  the 
state  may  withdraw  it  at  any  time  without  violating  the  obliga- 
tion of  any  contract  with  the  holder  of  the  bonds. 

"  Commonwealth  v.  Martin,  107  Pa.  185. 

Commonwealth  v.  Southworth,  18  Phila.  (Pa.)  593. 

Newark  City  Bank  v.  Assessors,  30  N.  J.  L.  13. 
"  Merchants  Ins.  Co.  v.  Newark,  54  N.  J.  L.  138 ;  23  Atl.  305. 
"  Commonwealth  v.  Pittsburg,  13  Pa.  County  Court  Eep.  5. 

Commonwealth  v.  Allegheny,  16  Weekly  Notes  of  Cases  (Pa.)  316. 
"Commonwealth  ■;;.  Southworth,  18  Phila.   (Pa.)   593. 
'"Von  Hoffman  v.  City  of  Quincy,  4  Wall.   (U.  S.)  535. 


20  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAIi  BONDS 

52.  The  state  may  contract  to  exempt  from  taxation  bonds 
otherwise  taxable,  in  the  absence  of  constitutional  restrictions, 
and  such  contracts  are  not  infrequent.  The  class  of  statutes 
commonly  known  as  Secured  Debt  Acts  is  an  instance.  Under 
the  provisions  of  such  acts,  the  holder  of  any  taxable  bond  of  the 
classes  to  which  the  acts  apply,  may  present  it  to  the  proper  offi- 
cial, who,  upon  the  payment  of  a  fixed  tax,  endorses  it  as  exempt 
from  future  taxation.^^  This,  undoubtedly,  constitutes  a  con- 
tract and  the  exemption  contracted  for  cannot  be  withdrawn  by 
the  state. 


VI.    INCOME  TAXES. 

53.  Nature  of  the  Tax: — The  Federal  Government  and 
many  of  the  states  have  enacted  statutes  taxing  incomes.*^ 
While  many  of  these  statutes  were  passed  pursuant  to  express 
constitutional  provisions  authorizing  the  enactment  of  such  laws, 
the  power  of  the  legislature  to  tax  incomes  does  not  depend  upon 
a  constitutional  grant.  The  power  of  taxation  is  plenary  and  in- 
cludes all  methods  of  taxation.^^ 

54.  Such  taxes  are  not  property  taxes  within  the  meaning  of 
constitutional  provisions  requiring  taxation  of  property  to  be 

"  Conn.,  Gen.  Stats.,  1918,  Sec.  1188. 

Mich.,  Comp.  Laws,  1915,  Sees.  4282-4286. 

Mo.,  Lawa  1917,  p.  539. 

New  York,  Tax  Law,  Sec.  332. 

Oklahoma,  Laws,  1917,  Ch.  264. 
**  U.  S.  Revenue  Law  1918. 

Ala.,  Laws  1919,  Act.  No.  328. 

Del.,  Laws  1917,  Ch.  26. 

Hawaii,  Rev.  Laws  1915,  Ch.  94. 

Indiana,  Laws  1919,  Ch.  247. 

Mass.,  Laws  1916,  Ch.  269. 

Miss.,  Hemingway's  Code  1917,  Ch.  120. 

Mo.,  Laws  1917,  p.  524. 

N.  M.,  Laws  1919,  Ch.  123. 

N.  Y.,  Laws  1919,  Ch.  627. 

N.  Car.,  Laws  1919,  Ch.  90. 

N.  Dak.,  Laws  1919,  Ch.  224. 

Okla.,  Laws  1915,  Ch.  164. 

Tenn.,  Thompson's  Shannon's  Code  1917,  Sec.  690. 

Va.,  Laws  1918,  Ch.  219. 

Wis.,  Laws  1911,  Ch.  658. 
"  Brushaber  v.  Union  Pac.  R.  E.  Co.,  240  U.  S.  1. 

Commonwealth  v.  Werth,  116  Va.  604;  82  S.  E.  695. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  21 

equal  and  uniform,^*  and,  accordingly,  graduated  taxes  have 
been  uniformly  sustained  as  constitutional.*^  Nor  are  such 
taxes  to  be  considered  as  direct  personal  taxes  or  privilege  taxes. 
It  has  been  said  that  there  are  three  general  classes  of  direct 
taxes :  capitation,  having  effect  solely  upon  persons ;  ad  valorem, 
having  effect  solely  upon  property ;  and  income,  having  a  mixed 
effect  upon  persons  and  property.**^ 

55.  Non-residents,  therefore,  may  be  subjected  to  such  tax- 
ation based  upon  the  income  earned  in  the  state  or  received  from 
residents  of  the  state  without  violating  the  Federal  Constitu- 
tion,*^ and  a  state  may  tax  income  derived  from  bonds  owned 
by  a  non-resident,  if  the  bonds  are  located  in  the  state,®*  but 
not  otherwise.*®  As  such  taxes  are  not  privilege  taxes,  they 
are  not  invalid  as  to  non-residents  on  the  ground  that  they  are 
levied  upon  interstate  commerce.'^"  Not  being  personal  taxes, 
the  state  levying  the  tax  need  not  have  jurisdiction  over  the  per- 
son entitled  to  the  income  taxed.®^ 

56.  The  fact  that  the  property  from  which  the  income  is  de- 
rived is  also  taxed,  does  not  render  a  tax  upon  such  income  void 
for  double  taxation,  the  income  being  regarded  as  a  distinct 
subject  of  taxation.*^ 

57.  Taxation  of  Income  of  Federal  Bonds  by  the  United 
States: — As  Congress  has  the  undoubted  power  to  tax  bonds  of 
the  United  States,  so,  likewise,  it  has  the  unquestioned  power  to 
tax  the  income  derived  from  such  bonds.    It  has  been  customary, 

"  Glasgow  V.  Rowse,  43  Mo.  479. 

Income  Tax  Cases,  148  Wis.  456;  134  N.  W.  673;  135  N.  W.  164. 

Waring  v.  Savannah,  60  Ga.  93.     Compare:    Maguire  v.  Tax  Com'r, 
230  Mass.  503 ;  120  N.  E.  162. 

Tax  Com'r  v.  Putnam,  227  Mass.  522;  116  N.  E.  904. 
"Wire  Co.  v.  Wollbrinck,  275  Mo.  339;  205  S.  W.  196. 

Income  Tax  Cases,  148  Wis.  456;  134  N,  W.  673;  135  N.  W.  164. 

Knowlton  v.  Moore,  178  U.  S.  41,  109. 

Alderman  v.  Wells,  85  S.  C.  507;  67  S.  E.  781. 
••  Glasgow  V.  Rowse,  43  Mo.  479. 
"  Shaffer  v.  Carter,  252  U.  S.  37. 

Travis  v.  Yale  &  Towne  Mfg.  Co.,  252  U,  S.  60. 
•»  DeGanay  i;.  Lederer,  250  TJ.  S.  376. 
"»  People  V.  Knapp,  N.  Y,  ;  129  N.  E.  202. 

■"  Shaffer  v.  Carter,  252  U.  S.  37. 
"  Shaffer  v.  Carter,  252  U.  S.  37. 

Travis  v.  Yale  &  Towne  Mfg.  Co.,  252  U.  S.  60. 
"  Alderman  v.  Wells,  85  S.  C.  507 ;  67  S.  E.  781. 


22  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

however,  in  the  various  acts  which  have  been  passed  by  Con- 
gress taxing  income,  to  exempt  from  such  taxes  the  income  de- 
rived from  bonds  of  the  United  States,^^  the  only  exceptions 
being  some  of  the  Liberty  and  Victory  Loan  Bonds.^* 

58.  Taxation  of  Income  of  Territorial  Bonds  by  the 
United  States: — Congress,  in  addition  to  having  power  to  tax 
bonds  of  the  United  States,  also  has  power  to  tax  bonds  of  the 
territories,  and  the  income  derived  therefrom.  As  heretofore 
pointed  out,  the  relation  of  the  territories  to  the  Federal  Gov- 
ernment is  similar  to  the  relation  existing  between  a  state  and  its 
counties  ;^^  hence,  bonds  of  the  territories  do  not  stand  in  the 
same  light  toward  the  Federal  Government  as  do  bonds  of  the 
respective  states.  The  United  States  Revenue  Law  of  1918,  how- 
ever, expressly  exempts  from  taxation  the  income  derived  from 
bonds  of  the  several  territories  and  of  their  political  subdivi- 
sions.®" 

59.  Taxation  of  Income  of  State  and  Municipal  Bonds  by 
the  United  States: — As  has  been  pointed  out  in  our  discussion 
as  to  the  power  of  the  United  States  to  tax  property,  the  Con- 
gress has  no  power  to  tax  either  the  instrumentalities  or  the 
property  of  the  States.^^  In  the  year  1894,  Congress  passed 
an  act  which  contained  provisions  for  taxing  income,  including 
that  derived  from  interest  upon  notes,  bonds,  or  other  securities, 
except  such  bonds  of  the  United  States,  the  principal  and  inter- 
est of  which  were  by  the  law  of  their  issuance  exempt  from  all 
Federal  taxation.^*  Litigation  arose  as  the  result  of  attempts 
to  tax  the  income  derived  from  municipal  bonds,  which  was  car- 
ried to  the  Supreme  Court  of  the  United  States.  It  was  con- 
tended that  although  the  property  or  revenues  of  the  States  or 
their  instrumentalities  could  not  be  taxed,  nevertheless  the  in- 

»« Eevenue  Law  1918,  See.  213. 

"  Post,  page  41. 

"Bank  v.  Yankton  County,  101  IT.  S.  129. 

Salt  Lake  City  Nat.  Bank  v.  Golding,  2  Utah  1. 
"  Eevenue  Law,  1918,  Sec.  213. 
"Pollock  V.  Farmers  L.  &  T.  Co.,  157  U.  S.  429;  158  U.  S.  601. 

Collector  v.  Day,  11  Wall.  (U.  S.)  113. 

Van  Broeklin  v.  Tennessee,  117  IJ.  S.  151. 

Ambrosini  v.  United  States,  187  U.  S.  1. 

Ante,  Sec.  15. 
••   28  Stats,  at  Large,  Ch.  349,  page  509. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICEPAL  BONDS  23 

come  derived  from  state,  county  and  municipal  securities  could 
be  taxed.  In  the  case  of  Pollock  v.  Farmers  Loan  and  Trust 
Company,^"  in  which  this  question  was  involved,  it  was  held 
that  Congress  did  not  have  power  to  tax  income  derived  from 
bonds  of  the  states  or  the  subdivisions  thereof.  In  the  opinion 
of  the  court,  it  was  stated  by  FuUer,  C.  J.,  "We  think  the  same 
want  of  power  to  tax  the  property  or  revenues  of  the  States  or 
their  instrumentalities  exists  in  relation  to  a  tax  on  the  income 
from  their  securities.  *  *  *  It  is  obvious  that  taxation  on  the 
interest  therefrom  would  operate  on  the  power  to  borrow  before 
it  is  exercised,  and  would  have  a  sensible  influence  on  the  con- 
tract, and  that  the  tax  in  question  is  a  tax  on  the  power  of  the 
States  and  their  instrumentalities  to  borrow  money,  and  conse- 
quently repugnant  to  the  Constitution." 

60.  Necessity  for  the  Sixteenth  Amendment: — It  was  also 
decided  in  the  Pollock  case  that  taxes  upon  income  from  taxable 
real  estate,  and  from  investments  in  taxable  personal  property, 
were  in  effect  direct  taxes,  requiring  apportionment  among  the 
several  states  in  proportion  to  the  census.  For  the  purpose  of 
removing  all  occasion  otherwise  existing  for  an  apportionment 
among  the  States  of  taxes  laid  on  income,  which  income  taxes  the 
United  States  Congress  has  at  all  times  been  authorized  to 
levy,^  there  has  been  adopted  the  Sixteenth  Amendment  to 
the  Constitution  of  the  United  States,  effective  February  25,  1913, 
which  provides  as  follows: 

"The  Congress  shall  have  power  to  lay  and  collect  taxes  on 
incomes  from  whatever  source  derived,  without  apportionment 
among  the  several  states,  and  without  regard  to  any  census  or 
enumeration. ' ' 

61.  Effect  of  the  Sixteenth  Amendment  to  the  Federal 
Constitution: — Since  the  adoption  of  this  amaendment  the  ques- 
tion has  arisen  of  whether  the  taxing  power  of  the  United  States 
has  been  extended,  by  this  amendment,  so  as  to  permit  of  the 
taxation  by  Congress  of  the  income  derived  from  bonds  of  the 

••  157  U.  S.  429. 

•  Brushaber  v.  Union  Pac.  R.  R.  Co.,  240  U.  S.  1. 

Stanton  v.  Baltic  Mining  Co.,  240  U.  S.  103. 

Peck  V.  Lowe,  247  U.  S.  165. 


24  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

various  states,  and  of  the  subdivisions  thereof.  Some  diversity 
of  opinion  appears  to  exist  among  eminent  authorities  and  so  far 
the  question  has  not  been  directly  passed  upon  by  the  United 
States  Supreme  Court. 

62.  The  Case  of  Evans  v.  Gore: — In  a  very  recent  deci- 
sion, however,  the  Supreme  Court  of  the  United  States  had  occa- 
sion to  consider  the  question  of  whether  the  Sixteenth  Amend- 
ment authorized  and  supported  a  tax  upon  the  net  income  of  a 
United  States  District  Judge,  assessed  under  the  Federal  Income 
Tax  Act  of  1918  (passed  since  he  took  office)  by  including  his 
official  salary  in  the  computation.^  In  this  case  it  was  said 
by  the  court.  Van  Devanter,  J.,  "Thus  the  genesis  and  words 
of  the  Amendment  unite  in  showing  that  it  does  not  extend  the 
taxing  power  to  new  or  excepted  subjects,  but  merely  removes 
all  occasion  otherwise  existing  for  an  apportionment  among  the 
states  of  taxes  laid  on  income,  whether  derived  from  one  source 
or  another."  It  is  significant  to  note,  that  at  this  point  in  the 
Court's  opinion  a  reference  is  made  to  the  fact  that,  in  passing 
the  Income  Tax  Law  of  1918,  Congress  refused  to  treat  interest 
received  from  bonds  issued  by  a  state  or  any  of  its  counties  or 
municipalities  as  within  the  taxing  power.  (Cong.  Rec.  vol.  57, 
pp.  553,  774-777,  2988,  c.  18,  Sec.  213,  40  Stat.  1065.)  In  point 
of  fact,  it  is  specifically  provided  in  the  Income  Tax  Law  of  1918 
that  the  income  from  obligations  of  a  state,  territory  or  any  po- 
litical subdivision  thereof,  is  not  to  be  included  in  determining 
gross  income  upon  which  the  tax  is  to  be  computed,  but  that 
income  from  such  bonds  shall  be  exempt. 

63.  Authors*  Opinion: — It  is  the  opinion  of  the  authors, 

based  upon  the  decision  of  the  United  States  Supreme  Court  in 
the  Pollock  case,  and  the  decisions  of  that  Court  since  the  adop- 
tion of  the  Sixteenth  Amendment,  that  no  additional  powers  of 
taxation  have  been  bestowed  upon  Congress  by  virtue  of  the 
Sixteenth  Amendment;  that  the  situation  is  the  same  today  so 
far  as  the  extent  of  the  taxing  power  of  the  United  States  is  con- 
cerned, as  it  was  at  the  time  the  Pollock  case  was  decided,  and 
that  any  attempt  by  Congress  to  tax  the  income  derived  from 

'Evans  v.  Gore,  253  U.  S.  245. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  25 

bonds  of  the  States  or  any  of  the  political  subdivisions  thereof, 
will  be  an  attempt  to  tax  the  power  of  the  States  and  of  their 
instrumentalities  to  borrow  money,  and,  for  that  reason,  that 
any  such  taxes  will  be  repugnant  to  the  Constitution.  In  short, 
it  is  our  opinion  that  the  Congress  of  the  United  States  has  no 
power  to  tax  the  income  derived  from  bonds  issued  by  the  States 
or  by  any  of  the  political  subdivisions  thereof. 

64.  Taxation  of  Income  of  Bonds  of  the  United  States  by 
the  Territories: — The  territories  of  the  United  States  unless 
restrained  by  the  acts  creating  them — commonly  called  Enabling 
Acts — or  unless  restrained  by  other  acts  of  Congress,  may  tax 
Federal  agencies.  Possibly,  therefore,  a  territory  may  have  the 
power  to  tax  the  income  derived  from  bonds  of  the  United  States, 
unless  so  restrained.^  It  is,  however,  the  policy  of  Congress 
to  exempt  from  such  taxation  all  bonds  issued  by  the  United 
States,*  and  the  question  is  merely  of  interest  academically. 
There  are  no  bonds  of  the  United  States  subject  to  such  taxation. 

65.  Taxation  of  hicome  of  Territorial  Bonds  by  the  Ter- 
ritories:— As  a  territory  may  tax  the  bonds  of  other  territories, 
unless  restrained  by  act  of  Congress,  so  it  may  tax  the  income 
derived  from  bonds  of  other  territories  unless  similarly  re- 
strained.^ The  Federal  Government,  however,  generally  ex- 
empts from  territorial  taxes,  all  bonds  which  it  authorizes  to  be 
issued  by  or  on  behalf  of  the  respective  territories  of  the  United 
States.*' 

66.  Taxation  of  Income  of  State  and  Municipal  Bonds  by 
the  Territories: — The  territories  of  the  United  States  being  in- 

» Talbot  V.  Silver  Bow  County,  139  U.  S.  438. 
People  V.  Moore,  1  Idaho  504. 
Silver  Bow  County  v.  Davis,  6  Mont.  306. 
First  Nat.  Bank  v.  Allbright,  13  N.  M.  514;  86  Pac.  548. 
Salt  Lake  City  Nat.  Bank  v.  Golding,  2  Utah  1. 

•  Revised  Statutes  U.  S.  Sec.  3701. 

•  Talbot  V.  Silver  Bow  County,  139  U.  S.  438. 
People  V.  Moore,  1  Idaho  504. 

Silver  Bow  County  v.  Davis,  6  Mont.  306. 
First  Nat.  Bank  v.  Allbright,  13  N.  M.  514;  86  Pac.  548. 
Salt  Lake  City  Nat.  Bank  v.  Golding,  2  Utah  1. 
Ante,  Sec.  13. 

•  (District  of  Columbia)  Revised  Stats.  U.  S.  Sec.  3701. 
(Philippines)  33  Stats,  at  Large,  p.  689. 

(Porto  Rico)  39  Stats,  at  Large,  p.  953. 


26  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

strumentalities  of  the  Federal  Government,  their  power  to  tax 
the  income  derived  from  bonds  of  the  States  is  restricted  by  the 
same  limitations  which  affect  the  right  of  the  Federal  Govern- 
ment to  levy  such  taxes.  As  the  United  States  cannot  tax  the 
income  derived  from  bonds  of  the  States  and  their  subdivisions, 
neither,  in  the  opinion  of  the  authors,  can  the  territories  tax  such 
income. 

67.  Taxation  of  Income  of  Federal  Bonds  by  the  States: — 

As  we  have  seen,  the  States  have  no  power  to  tax  bonds  of  the 
United  States  or  bonds  of  the  territories  thereof/  For  the 
same  reasons  the  States  are  also  without  power  to  tax  the  income 
derived  from  bonds  of  the  United  States,  or  bonds  of  the  terri- 
tories thereof.  A  tax  upon  the  income  derived  from  a  bond  is 
a  tax  upon  the  security.* 

68.  Taxation  of  Income  of  State  and  Municipal  Bonds  by 
the  States : — The  income  derived  from  state  and  municipal  bonds 
is  clearly  subject  to  an  income  tax.  Can  the  state,  however,  levy 
such  a  tax  upon  the  income  derived  from  a  bond  which  it  has  con- 
tracted to  exempt  from  taxation  ?  The  right  of  the  state  to  tax  the 
income  of  such  bonds  does  not  appear  ever  to  have  been  decided. 
On  principle,  however,  it  would  seem  that  it  is  not  within  the 
power  of  a  state  to  tax  such  income.  It  is  well  established  that 
a  tax  upon  the  income  of  a  bond  is  a  tax  upon  the  security.^ 
It  is  for  that  reason  a  state  cannot  tax  the  interest  of  bonds  of 
the  Federal  Government.  It  would  seem  to  be  no  less  a  tax  upon 
the  security  when  it  is  levied  by  a  state  upon  the  income  of 
a  state  or  municipal  bond.  If  the  bond  is  exempt  from  taxa- 
tion by  a  contract,  protected  by  the  Federal  Constitution,  in 
what  respect  does  the  taxation  of  the  income  derived  from  such 
a  bond  differ  from  the  taxation  of  the  income  of  bonds  of  the 
United  States? 

69.  When  a  bond  is  issued  under  such  circumstances,  that  a 
contract  for  an  exemption  from  taxation  arises,^**  or  when  for 

'Weston  V.  Charleston,  2  Pet.  (TJ.  S.)  449. 

Farmers  Bank  v.  Minnesota,  232  U.  S.  516. 

Ante,  Sec.  11. 
•Weston  V.  Charleston,  2  Pet.  (U.  S.)  449. 
•Weston  V.  Charleston,  2  Pet.  (U.  8.)  449. 
"  Ante.  Sees.  49-51. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  27 

a  valuable  consideration  the  state  has  contracted  to  exempt  a 
bond  from  future  taxation/^  in  the  opinion  of  the  authors, 
the  state  may  not  violate  such  contract  by  taxing  the  bond  under 
the  guise  of  taxing  the  income  derived  therefrom. 

70.  When,  however,  the  exemption  from  taxation  is  not  a 
contract  right,  it  may  be  withdrawn  at  any  time  by  the  state. ^^ 
Under  such  circumstances  there  seems  to  be  no  reason  why  the 
state  may  not  tax  the  income  of  the  bond.  If  it  might  withdraw 
entirely  the  exemption,  it  clearly  can  withdraw  it  to  the  extent 
of  subjecting  to  taxation  the  income  derived  from  the  bond.  At- 
tempts to  tax  the  income  of  exempt  securities  are  rare;  but  see 
page  79  where  such  an  attempt  on  the  part  of  the  State  of  New 
York  is  referred  to. 


VII.    TAXATION  OF  BONDS  OF  NON- 
RESIDENTS. 

71.  General  Rules: — The  taxing  power,  as  has  been  seen, 
extends  only  to  subjects  within  the  jurisdiction  of  the  sovereign 
levying  the  tax.^-  The  Common  Law  regarded  the  domicile 
of  the  owner  as  the  situs  of  personal  property  for  the  purpose  of 
taxation,  regardless  of  the  actual  location  of  the  property.  This 
rule  was  applied  to  tangible  as  well  as  to  intangible  property. 

72.  The  fiction  that  personalty  followed  the  domicile  of  the 
owner  grew  up  in  the  middle  ages,  when  personalty  consisted 
chiefly  of  gold  and  jewels,  which  could  easily  be  carried  by  the 
owner  from  place  to  place  or  secreted  in  spots  known  only  to 
himself.  In  modern  times  personal  property  has  greatly  in- 
creased both  in  amount  and  variety  and  a  vast  amount  of  per- 
sonal property  exists  today  which  is  not  at  all  related  to  or  con- 
nected with  the  person  of  the  owner.  The  fiction  has,  accord- 
ingly, yielded  more  and  more  to  the  lex  situs,  i.  e.,  the  law  of  the 
place  where  the  property  is  actually  located.^* 

"  Ante.  Sec.  52. 

"Commonwealth  v.  Southworth,  18  Phila.  (Pa.)  593. 

Ante.  Sec.  50. 
"  Ante.  Sec.  1. 
"Pullman's  Palace  Car  Co.  v.  Pennsylvania,  141  U.  S.  18. 


28  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAIj  BONDS 


73.  Tangible  personal  property  is  now  generally  governed 
by  the  lex  situs.  It  is  now  well  settled  that  a  state  cannot  tax  a 
resident  for  property  which  has  acquired  a  permanent  situs 
beyond  its  boundaries.^^  This  rule,  however,  has  no  applica- 
tion to  intangible  property.^**  As  to  intangible  property,  the 
old  fiction  is  still  recognized  in  many  instances.  For  example, 
the  Supreme  Court  of  the  United  States  has  held  that  simple 
contract  debts,  though  represented  by  promissory  notes,  have  no 
situs  for  taxation,  under  ordinary  conditions,  except  at  the  domi- 
cile of  the  creditor." 

74.  Rule  as  to  Public  Securities : — It  is  not  within  the  scope 
of  this  treatise  to  trace  out  the  bewildering  refinements  of  this 
doctrine.  It  is  sufficient  to  say  that  the  fiction  is  not  adhered  to 
in  the  case  of  municipal  or  other  public  securities.  It  is  well 
settled  that  such  securities  are  in  such  concrete,  tangible  form 
that  they  are  subject  to  taxation  where  found  irrespective  of  the 
domicile  of  the  owner  and  a  state  may  declare  that,  if  found  with- 
in its  limits,  they  shall  be  subject  to  taxation. ^^  The  statutes 
of  most  states  accordingly  provide  for  the  taxation  of  such  securi- 
ties in  the  hands  of  non-residents  either  expressly  or  by  provid- 
ing that  all  personal  property  within  the  state  shall  be  subject 
to  taxation. 

75.  Situs  for  Taxation: — The  physical  presence  of  the  bond 
within  the  limits  of  the  state  is  essential  to  give  the  state  juris- 
diction to  tax  it,  when  owned  by  a  non-resident.  The  power  of 
taxation  is  confined  to  the  territorial  limits  of  the  state  and  it  is 
not  within  the  power  of  a  state  to  tax  bonds  owned  by  a  non- 
resident unless  it  has  acquired  jurisdiction  over  the  bonds  by 
reason  of  their  presence  in  the  state.  An  attempt  to  tax  prop- 
erty not  within  the  jurisdiction  of  the  state  violates  the  Consti- 

"  Louisville,  etc.  Ferry  Co.  v.  Kentucky,  188  U.  S.  385. 

Delaware,  L.  &  W.  E.  E.  Co.  v.  Pennsylvania,  198  U.  S.  341. 
'=  Hawley  v.  City  of  Maiden,  232  U.  S.  1. 

Fidelity  &  Columbia  Tr.  Co.  v.  Louisville,  245  U.  S.  54. 
"  Buck  V.  Beach,  206  U.  S.  392. 
"  State  Tax  on  Foreign-held  bonds,  15  Wall.  (U.  S.)  300. 

New  Orleans  v.  Stempel,  175  U.  S.  309. 

Buck  V.  Beach,  206  U.  S.  392. 

DeGanay  v.  Lederer,  250  U.  S.  376. 


TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  29 

tution  of  the  United  States  by  depriving  the  owner  thereof  of 
property  without  due  process  of  law.^'' 

76.  Mere  temporary  presence  of  property  within  the  limits 
of  the  state  is  not  sufficient  to  confer  jurisdiction.^"  There- 
fore, a  bond  sent  into  a  state  for  collection,  registration,  sale  or 
exchange,  etc.,  by  a  non-resident,  is  not  subject  to  taxation  by 
that  state. 

77.  Power  to  Deduct  Tax  from  Interest  on  Bonds: — In  an 

attempt  to  tax  bonds  of  non-residents,  which  are  not  located  in 
the  state,  several  states  have  resorted  to  the  device  of  requiring 
the  debtor  to  deduct  the  amount  of  the  tax  from  the  annual  inter- 
est paid  thereon  and  to  pay  the  tax  so  withheld  to  the  state  or 
to  its  agent.  The  Supreme  Court  of  the  United  States  has  held, 
that,  so  far  as  concerns  non-residents,  this  device  violates  the 
Federal  Constitution  on  the  ground  that  it  impairs  the  obliga- 
tion of  the  contract  between  the  debtor  and  the  bondholder.  A 
debt  is  not  in  any  sense  the  property  of  the  debtor.  It  possesses 
value  only  in  the  hands  of  the  creditor  and  has  no  situs  for  the 
purpose  of  taxation  independent  of  the  residence  of  the  creditor, 
unless  it  is  represented  by  a  concrete,  tangible  obligation  such  as 
a  state  or  municipal  bond.  Therefore,  unless  the  state  has  ac- 
quired jurisdiction  over  the  creditor  by  reason  of  his  residence 
in  the  state  or  over  the  debt  by  reason  of  the  presence  in  the  state 
of  the  bond  representing  it,  a  law,  requiring  the  deduction  by 
the  debtor  of  the  amount  of  the  tax  from  the  annual  interest, 
is  not  a  legitimate  exercise  of  the  taxing  power  but  an  unlawful 
interference  between  the  debtor  and  the  creditor,  which  impairs 
the  obligation  of  the  contract  between  the  parties.-^ 

78.  Limitations  imposed  by  Federal  Constitution: — While 
it  is  within  the  power  of  a  state  to  tax  state  or  municipal  bonds 
owned  by  non-residents,  when  actually  located  in  the  state,  it 
can  tax  such  bonds  only  at  the  same  rate  and  under  the  same 

'« Buck  V.  Beach,  206  U.  S.  392. 
"  Herron  v.  Keeran,  59  Ind.  472. 

McCormick  v.  Fitch,  14  Minn.  252. 

Metropolitan  Life  Ins.  Co.  v.  Newark,  62  N.  J.  L.  74;  40  Atl.  573. 

Detmold  v.  Engle,  34  N.  J.  L.  425. 
*' State  Tax  on  Foreign-held  Bonds,  15  Wall.  (U.  S.)  300. 

Murray  -;;.  Charleston,  96  U.  S.  432. 


30  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

conditions  as  it  taxes  similar  securities  when  owned  by  residents. 
The  Constitution  of  the  United  States,  Art.  4,  Sec.  2,  provides 
that,  ' '  The  citizens  of  each  state  shall  be  entitled  to  all  privileges 
and  immunities  of  citizens  of  the  several  states. "  It  is  not,  there- 
fore, within  the  power  of  a  state  to  impose  upon  non-residents 
a  tax  from  which  it  exempts  residents."  The  distinction  be- 
tween the  terms  "resident"  and  "citizen"  is  not  material  in  this 
connection.  A  general  taxing  scheme  which  discriminates  against 
all  non-residents  has  the  necessary  effect  of  including  in  the  dis- 
crimination those  who  are  citizens  of  other  states,  and  abridges 
the  privileges  and  immunities  to  which  such  citizens  are  en- 
titled.23 

79.  Double  Taxation : — If  a  state  has  acquired  jurisdiction 
over  the  bonds  of  a  non-resident,  it  may  levy  taxes  thereon  not- 
withstanding the  fact  that  another  state  is  also  taxing  the  bonds 
by  reason  of  its  jurisdiction  over  the  owner  thereof.^*  The 
fact  that  the  bonds  may  thus  be  subjected  to  double  taxation  is 
immaterial,  the  Federal  Constitution  not  prohibiting  double  tax- 
ation.^^ 

VIII.    EFFECT  OF  INVALID  RECITAL. 

80.  Effect  on  Validity  of  the  Bond: — The  effect  of  a  recital 
in  a  state  or  municipal  bond  that  it  is  exempt  from  taxation,  when 
the  Constitution  and  statutes  of  the  state  do  not  authorize  such 
an  exemption,  has  never  been  decided.  Such  a  recital,  if  un- 
authorized, does  not  invalidate  the  bond.-^  But,  whether  such 
a  recital  confers  any  rights  upon  the  holder  of  the  bond,  does 
not  appear  ever  to  have  been  considered  by  the  courts. 

81.  Rights  of  Bondholders: — It  seems  clear  that  no  such 
rights  will  arise  on  the  theory  of  contract.  A  municipality  has 
no  power  to  contract  to  exempt  property  from  taxation  unless 

*"  Paul  V.  Virginia,  8  Wall.  (U.  S.)  168. 

Ward  V.  Maryland,  12  Wall.  (U.  S.)  418. 

Maxwell  v.  Bugbee,  250  U.  S.  525. 
»  Travis  v.  Yale  &  Towne  Mfg.  Co.,  252  U.  S.  60. 
"  Coe  V.  Errol,  116  U.  S.  517. 

Boyer  v.  Jones,  14  Ind.  354. 
=»  Cream  of  Wheat  Co.  v.  Grand  Forks  County,  253  U.  S.  325. 
»«  Lumberton  Imp.  Co.  v.  Eobeson  County,  146  N.  C.  353 ;  59  S.  E.  1014. 


TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  31 

expressly  authorized  to  do  so  by  statute.^^  Its  power  to  con- 
tract is  delegated  to  it  by  the  state,  and,  accordingly,  if  the  state 
is  prohibited  by  the  constitution  from  contracting  for  such  an 
exemption,  a  municipality  or  other  sub-division  of  the  state  can 
not  be  delegated  such  power.  The  state  cannot  delegate  to  a  mu- 
nicipality a  power  which  it  does  not  itself  possess.  Therefore, 
sueh  a  recital,  whether  made  by  the  state  or  a  municipality  under 
such  circumstances,  does  not  result  in  conferring  contractual 
rights  upon  the  holder  of  the  bond.  If  the  recital  be  considered 
as  an  attempted  contract,  the  conclusion  is  inevitable  that  the 
contract  is  void  for  want  of  power  in  the  state  or  municipality 
to  make  it. 


82.  The  principle  of  estoppel  cannot  be  invoked  by  the 
holder  of  a  bond  containing  such  a  recital.  Recitals  are  a  pro- 
tection to  a  bona  fide  holder  of  a  state  or  municipal  bond  only  in 
so  far  as  they  cover  matters  of  fact.  The  doctrine  of  estoppel 
does  not  extend  to  or  cover  matters  of  law.  All  parties  are 
equally  bound  to  know  the  law.^^  Moreover,  estoppel  does 
not  arise,  except  upon  matters  of  fact  which  the  officers  issuing 
the  bond  had  authority  by  law  to  determine  and  certify.^*^ 
Clearly,  it  is  not  the  province  of  the  officials  issuing  such  a  bond 
to  determine  what  property  is  or  shall  be  taxable.  The  interpre- 
tation of  existing  tax  laws  is  the  province  of  the  courts.  The 
power  to  determine  what  property  shall  be  taxed  is  vested  in  the 
legislature.  An  essential  element  to  a  valid  recital  is,  accord- 
ingly, lacking  and  such  a  recital,  therefore,  does  not  estop  the 
proper  officials  from  assessing  the  bond  for  taxation. 

83.  As  a  warranty  is  contractual  in  its  nature,  the  limita- 
tions on  the  power  to  contract,  above  referred  to,  preclude  the 
state  or  municipality  being  held  upon  that  ground.  Nor,  can 
it  be  contended  that  a  cause  of  action  will  lie  on  the  theory  of 
fraud.    All  persons  are  equally  bound  to  know  the  law  and  for 

"Tarver  v.  City  of  Dalton,  134  Ga.  462;   67  S.  E.  929;   29  L.  B.  A 

(N.  S.)  183  N. 
"Dixon  County  v.  Field,  111  U.  S.  83,  92.     Dillon  Mim.  Corp.   (5th  ed.) 

See.  933. 
="'Coloma  V.  Eaves,  92  U.  S.  484,  Dixon  County  v.  Field,  111  U.  S.  83 

Dillon  Mun.  Corp.  (5th  Ed.),  Sec.  926. 


32  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

that  reason  there  can  be  no  fraudulent  misrepresentation  of  the 
law.3" 

84,  It  is  difficult  to  conceive  of  any  theory  upon  which  the 
state  or  municipality  may  be  held  liable  to  the  holder  of  a  bond 
containing-  such  an  erroneous  recital.  The  fact  that  it  has  been 
held  that  such  a  recital,  if  erroneous,  does  not  affect  the  validity 
of  the  bond  would  indicate  that  the  recital  is  to  be  regarded  as 
mere  surplusage,  conferring  no  rights  upon  anyone. 


IX.    POWER  OF  MUNICIPALITY  TO  EXEMPT 
BONDS  FROM  TAXATION. 

85,  A  municipality  has  no  inherent  right  to  exempt  prop- 
erty from  taxation."^  It,  therefore,  follows  that,  in  the  ab- 
sence of  constitutional  or  statutory  provisions  granting  it  such 
power,  a  municipality  cannot  exempt  its  own  bonds  from  local 
taxation.  In  the  State  of  Virginia  this  power  has  been  granted 
to  the  counties,  cities  and  towns  of  the  state  by  the  constitu- 
tion.^^  The  right  of  the  legislature  to  delegate  such  power  to 
municipalities,  without  express  constitutional  authority,  has  also 
been  sustained.^" 


X.     SECURED  DEBT  ACTS. 

86.  Many  states  have  passed  laws  authorizing  the  exemp- 
tion from  taxation  of  bonds  upon  the  payment  of  a  fixed  tax.^* 
Ordinarily  these  acts  provide  for  the  exemption  of  the  bonds 
from  taxation  for  a  limited  period,  but  occasionally  a  permanent 
exemption  is  granted.    Apparently  the  constitutionality  of  such 

'»  Mutual  Life  Ins.  Co.  v.  Phinnev,  178  TJ.  S.  327. 

Georgia  Home  Ins.  Co.  v.  Warten,  113  Ala.  479;  22  So.  288. 

Fish  V.  Cleland,  33  111.  238. 
^'Tarver  v.  Dalton,   134  Ga.   462;    67   S.   E.   929;   29  L.  E.   A.    (N.  S.) 

183  N. 
"  Art.  13,  See.  183. 

^  Buist  V.  Charleston,  77  S.  C.  260,  57  S.  E.  862. 
"  Conn.  Gen.  Stats.  1918,  Sec.  1188. 

Mich.  Comp.  Laws,  1915,  Sees.  4282-4286. 

Mo.  Laws,  1917,  p.  539. 

N.  Y.  Tax  Law,  Sec.  332. 

Okla.  Laws  1917,  Ch.  264. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  33 

laws  has  been  considered  only  by  the  Supreme  Court  of  Massa- 
chusetts. That  court  has  held  that  such  a  statute  violates  the 
uniformity  clause  of  the  constitution  of  that  state  for  the  reason 
that  bonds  which  have  been  registered  under  the  act  are  not  taxed 
at  the  same  rate  as  other  similar  securities."^'  The  constitu- 
tionality of  these  laws  does  not  seem  ever  to  have  been  questioned 
in  anv  other  state. 


XL    ATTEMPTS  TO  EVADE  TAXATION. 

87.  A  taxpayer  cannot  avoid  taxation  by  temporarilj^  con- 
verting his  property  into  securities  which  are  exempt  from  tax- 
ation. When  such  a  conversion  is  made  for  the  sole  purpose  of 
defrauding  the  government  of  its  just  dues,  and  to  enable  the 
taxpayer  to  escape  the  payment  of  his  just  proportion  of  the 
taxes  imposed  by  law,  he  cannot  shelter  himself  behind  such 
temporary  change  in  the  character  of  his  funds  to  escape  tax- 
ation. Under  such  circumstances  the  money  invested  in  the  se- 
curities is  taxable.^® 


XII.    INHERITANCE  TAXES. 

88.  Character  of  the  Tax: — The  power  of  a  state  to  tax  in- 
heritances is  beyond  question.  Such  taxes  uniformly  have  been 
held  to  be  constitutional.^'  The  decisions  sustaining  the  con- 
stitutionality of  such  taxes  are  based  on  two  principles:  1.  An 
inheritance  tax  is  not  one  on  the  property  but  one  on  the  suc- 
cession; 2.  The  right  to  take  property  by  devise  or  descent  is 
the  creature  of  the  law,  and  not  a  natural  right  or  privilege,  and, 
therefore,  the  authority  which  confers  the  right  may  impose  con- 

"  Perkins  v.  Westwood,  226  Mass.  268;  115  N.  E.  411. 

"  Mitchell  V.  Leavenworth  County,  9  Kan.  344 ;  91  U.  S.  206. 

Shotwell  V.  Moore,  129  U.  S.  590. 

In  re  Peoples  Bank  of  Vermont,  203  111.  300 ;  67  N.  E.  777. 

Ogden  V.  Walker,  59  Ind.  460. 

Crowder  v.  Riggs,  153  Ind.  158 ;  53  N.  E.  1019. 

Holly  Springs  Sav.  &  Ins.  Co.  v.  Marshall  Co.,  52  Miss.  281. 

Jones  V.  Seward  County,  10  Neb.  154 ;  4  N.  W.  946. 
"  United  States  v.  Perkins,  163  U.  S,  625. 

Strode  v.  Commonwealth,  52  Penn.  St.  181. 

Matter  of  Merriam,  141  N.  Y.  479;  36  N.  E.  505;  163  U.  S.  625. 

Minot  V.  Winthrop,  162  Mass.  113;  38  N.  E.  512. 


34  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAli  BONDS 

ditions  upon  it.  From  these  principles  it  is  deduced  that  the 
states  may  tax  the  privilege ;  discriminate  between  relatives ;  and 
between  these  and  strangers,  and  grant  exemptions ;  and  in  exer- 
cising this  power  are  not  affected  by  the  provisions  of  the  re- 
spective state  constitutions  requiring  uniformity  and  equality 
of  taxation.^^  It  is  well  settled  that  an  inheritance  tax  is  not 
levied  upon  the  property  inherited  but  upon  the  right  to  in- 
herit.^^  The  power  of  a  state  to  tax  this  right  is  now  admitted. 
The  right  to  inherit  property  is  not  a  natural  right  but  a  right 
conferred  by  law.  In  the  absence  of  constitutional  limitations, 
the  state  may  grant  or  withhold  the  right.  Having  full  power 
to  withhold  the  right  the  state  may  grant  it  upon  any  conditions 
which  it  sees  proper  to  impose,  provided  the  conditions  imposed 
do  not  contravene  constitutional  provisions.*" 

89.     EfiFect  upon  Tax-exempt  Securities: — As  the  tax  is  not 

levied  upon  the  property  passing,  but  upon  the  right  to  take  the 
property  by  will  or  descent,  the  character  of  the  property  pass- 
ing, or  the  person  receiving  it,  is  immaterial.  The  state  may  law- 
fully measure  or  fix  the  amount  of  the  tax  by  referring  to  the 
value  of  the  property  passing,  and  the  incidental  fact  that  such 
property  is  composed,  in  whole  or  in  part,  of  Federal  or  other 
exempt  securities,  does  not  affect  the  validity  of  the  tax.*^ 

"  Magoun  v.  Illinoia  Tr.  &  Sav.  Bank,  170  F.  S.  283. 
"  United  States  v.  Perkins,  163  U.  S.  625. 

Plummer  v.  Coler,  178  U.  S.  115. 

Matter  of  Merriam,  141  N.  Y.  479;  36  N.  E.  505;  163  U.  S.  625. 

Conways  Estate  v.  State,  Ind.  ;  120  N.  E.  717. 

State  V.  Guinotte,  275  Mo.  298;  204  S.  W.  806. 

Corbin  v.  Baldwin,  92  Conn.  99 ;  101  Atl.  834. 

Brown  v.  Gullif  ord,  181  Iowa  897 ;  165  N.  W.  182. 

Walker  v.  People,  64  Colo.  143;  171  Pae.  747. 

Farkas  v.  Smith,  147  Ga.  503 ;  94  S.  E.  1016. 

Oakman  v.  Small,  282  lU.  360;  118  N.  E.  775. 
"State  V.  Guinotte,  275  Mo.  298;  204  S.  W.  806. 

Plummer  f.  Coler,  178  U,  S.  115. 

Magoun  v.  Illinoia  Tr.  &  Sav.  Bank,  170  U.  S.  283. 
*'  Plummer  v.  Coler,  178  U.  S.  115. 

Succession  of  Kohn,  115  La.  71 ;  38  So.  898. 

Succession  of  Levy,  115  La.  377;  39  So.  37. 

Nettleton  'a  Appeal,  76  Conn.  235 ;  56  Atl.  565. 

Strode  v.  Commonwealth,  52  Penn.  St.  181. 

Matter  of  Merriam,  141  N.  Y.  479 ;  36  N.  E.  505 ;  163  U.  S.  625. 

Matter  of  Bronson,  150  N.  Y.  1 ;  44  N.  E.  707. 

Wallace  v.  Myers,  38  Fed.  184. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  35 


90.  Bequests  to  the  United  States  and  Public  Bodies: — 

Such  a  tax  may  lawfully  be  levied  upon  a  bequest  or  devise  re- 
gardless of  the  character  of  the  beneficiary.  Hence,  the  Supreme 
Court  of  the  United  States  has  held  that  devises  to  the  United 
States  are  subject  to  such  laws."  But  an  inheritance  tax  law 
will  not  be  construed,  in  the  absence  of  express  language  to  that 
effect,  as  taxing  a  devise  to  the  state,  levying  the  tax,  or  to  its 
governmental  agencies.*^ 

91.  Federal  Inheritance  Taxes: — The  power  of  the  United 
States  to  levy  an  inheritance  tax  under  the  same  conditions  ap- 
plicable to  state  inheritance  taxes,  has  been  sustained.** 


XIII.    FRANCHISE  AND  PRIVILEGE  TAXES. 

92.  A  franchise  or  privilege  tax  is  not  a  tax  upon  property 
but  is  levied  upon  the  franchise  or  the  privilege.  It  is  well  set- 
tled that  the  privileges  and  franchises  of  a  private  corporation, 
and  all  trades  and  avocations  by  which  citizens  acquire  a  liveli- 
hood, may  be  taxed  by  the  states  and  the  Federal  Government, 
for  the  support  of  the  government.  Authority  to  levy  such  a 
tax  is  wholly  unaffected  by  the  fact  that  the  corporation  or  indi- 
vidual has  or  has  not  invested  in  securities,  which  are  exempt 
from  taxation  by  the  authority  levying  the  tax.*^ 


XIV.    TAXATION  OF  CORPORATE  STOCK. 

93.     Character  of  the  Tax: — Taxes  are  levied  by  most  states 
upon  shares  of  stock  of  private  corporations  in  the  hands  of  the 

"  United  States  v.  Perkins,  163  U.  S.  625. 

Snyder  v.  Bettman,  190  U.  S.  249. 
*'  Henson  v.  Monday,  Tenn.  ;  224  S.  W.  1043. 

Ee  Macky,  46  Colo.  79;  102  Pae.  1075. 
"  Murdock  v.  Ward,  178  U.  S.  139. 
'^Society  for  Savings  v.  Coite,  32  Conn.  186;  6  Wall.  (U.  S.)  594. 

Provident  Inst.  v.  Massachusetts,  6  Wall.  (U.  S.)  611. 

Home  Ins.  Co.  v.  New  York,  134  U.  S.  594. 

Nev?  York  v.  Roberts,  171  U.  S.  658. 

Flint  V.  Stone  Tracy  Co.,  220  JJ.  S.  107. 

Monroe  Sav.  Bank  v.  Eoehester,  37  N.  Y.  365. 


36  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

stockholders.  The  statutes  levying  such  taxes  usually  do  not  per- 
mit any  deductions  from  the  value  of  the  shares  owned  by  the 
stockholder  on  account  of  tax-exempt  securities  in  which  the  capi- 
tal of  the  corporation  is  invested.  These  taxes  frequently  have 
been  attacked  on  the  ground  that  they  are  levied  upon  the  capi- 
tal of  the  corporation  and,  hence,  upon  the  exempt  securities  in 
which  the  capital  is  invested.  It  is  well  settled,  however,  that 
a  tax,  levied  upon  shares  of  stock  in  the  hands  of  the  stock- 
holders, is  not  a  tax  upon  the  capital  of  the  corporation.** 
In  corporations  four  elements  of  taxable  value  are  ordinarily 
found:  1.  Franchises;  2.  Capital  stock  in  the  hands  of  the  cor- 
poration ;  3.  Corporate  property ;  4.  Shares  of  stock  in  the  hands 
of  stockholders.  Each  of  these  is,  under  some  circumstances,  an 
appropriate  subject  of  taxation.*^ 

94.  El£Fect  upon  Tax-exempt  Investments: — As  the  shares 
of  stock  in  the  hands  of  the  stockholders  are  subjects  of  taxation 
distinct  from  the  capital  stock  of  the  corporation,  a  tax  may  be 
levied  upon  the  shares  regardless  of  the  nature  of  the  property 
in  which  the  capital  of  the  corporation  is  invested,  and  notwith- 


**  Maguire  v.  Bd.  of  Eevenue,  71  Ala.  401. 

Porter  v.  Eailioad,  76  111.  561. 

Hubbard  v.  Johnson  County,  23  Iowa,  130. 

In  re  First  Nat.  Bank  of  Aurora,  Neb.  ;  171  N.  W.  912. 

Durham  Countv  v.  Blackwell,  116  N.  C.  441;  21  S.  E.  423. 

Merchants  Baiik  i\  McHenry  Countv,  31  N.  D.  108 ;  153  N.  W.  386. 

Memphis  v.  Farrington,  8  Baxt.  (Tenn.)  539;  rev.  95  U.  S.  679. 

Compare,  Commonwealth  v.  Fall  Brook  Coal  Co.,  156  Pa.  488;  26  Atl. 
1071. 

State  V.  Simmons,  7  Miss.  485;   12  So.  477. 

State  V.  Hannibal  &  St.  J.  E.  Co.,  37  Mo.  265. 
*'  Tennessee  v.  Whitworth,  117  U.  S.  129. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  37 

standing  the  fact  that  such  property  may  be  exempt  from  tax- 
ation.*® 

95.  Method  of  Collection: — For  the  purpose  of  facilitating 
the  collection  of  the  tax,  such  statutes  frequently  require  the 
corporation,  as  the  agent  of  the  stockholders,  to  pay  the  tax  on 
their  behalf.  The  state  may  prescribe  such  a  method  of  collec- 
tion, without  affecting  the  nature  of  the  tax,  provided  the  tax  is 
levied  upon  the  shares  and  not  upon  the  corporation/^ 

96.  When  Corporation  Exempt  from  Taxation: — When 
the  corporation  itself  or  its  capital  stock  is  exempted  from  tax- 
ation by  contract,  this  rule  does  not  apply,  and  under  such  cir- 

"Van  Allen  v.  The  Assessors,  3  Wall.  (U,  S.)  573. 

People  V.  Weaver,  100  U.  S.  539. 

Cleveland  Trust  Co.  v.  Lander,  184  U.  S.  111. 

Home  Sav.  Bank  v.  Des  Moines,  205  U.  S.  503. 

Tarrant  v.  Bessemer  Nat.  Bank,  7  Ala.  App.  285;  61  So.  47. 

Batterson  v.  Hartford,  50  Conn.  558. 

Boberts  v.  Automobile  Ins.  Co.,  89  Conn.  181;  93  Atl.  243. 

People   V.   Bradley,   39   111.    130;    rev.   3   Wall.    (U.   S.)    572,  4   Wall. 
(TJ.  S.)  459. 

Wright  V.  Stilz,  27  Ind.  338. 

German  American  Sav.  Bank  v.  Council,  118  la.  84;  91  N.  W.  829. 

Marion  Nat.  Bank  v.  Burton,  121  Ky.  876;  90  S.  W.  944, 

First  Nat.  Bank  v.  Bd.  of  Reviewers,  41  La.  Ann.  181 ;  5  So.  408. 

Home  Ins.  Co.  v.  Assessors,  42  La.  Ann.  1131;  8  So.  481. 

Parker  v.  Sun  Ins.  Co.,  42  La.  Ann.  1172;  8  So.  618. 

Bank  of  Oxford  v.  Mayor,  70  Miss.  504;  12  So.  203. 

St.  Louis  Bldg.  Ass'n  v.  Lightner,  47  Mo.  393. 

Stratton  v.  Collins,  43  N.  J.  L.  562. 

People  V.  Tax  Com'rs,  35  N.  Y.  423;  4  Wall.  (U.  S.)  244. 

Williams  v.  Weaver,  75  N.  Y.  30;  100  U.  S.  547. 

Nat.  Union  Bank  v.  Neil,  106  S.  C.  173 ;  90  S.  E.  744. 

Carolina  Nat.  Bank  v.  Spigner,  106  S.  C.  185;  90  S.  E.  748. 

Adair  ■;;.  Robinson,  6  Tex.  Civ.  App.  275;  25  S.  W.  734. 

Salt  Lake  City  Nat.  Bank  v.  Golding,  2  Utah  1. 

Union  Bank  v.  Richmond,  94  Va.  316;  26  S.  E.  821. 

Old  Nat.  Bank  v.  County  Court,  58  W.  Va.  559 ;  52  S.  E.  494. 

Compare,  In  re  Assessment  First  Nat.  Bank  of  Chickasha,  58  Okla.  508 ; 
160  Pac.  469. 
"Nat.  Bank  v.  Commonwealth,  9  Wall.   (U.  S.)   353. 

Tennessee  v.  Whitworth,  117  U.  S.  129. 

Aberdeen  Bank  v.  Chehalia  County,  160  U.  S.  440. 

Merchants  Bank  v.  Pennsylvania,  167  U.  S.  461. 

Cleveland  Trust  Co.  v.  Lander,  184  U.  S.  111. 

Home  Sav.  Bank  v.  Des  Moines,  205  U.  S.  503. 

Roberts  v.  Automobile  Ins.  Co.,  89  Conn.  181;  93  Atl.  243. 


J574yir> 


38  TAXATION  OF  PEDERAli,  STATE  AND  MUNICIPAL  BONDS 

cumstances  a  tax  may  not  be  levied  upon  the  shares  of  stock  in 
the  hands  of  the  stockholders.^" 

97.  Rule  in  Oklahoma: — In  a  recent  case  in  Okla- 
homa,''^ the  Supreme  Court  of  that  State  held  that  stock- 
holders of  a  national  bank  were  entitled  to  deduct  from  the  value 
of  their  shares  that  proportion  of  the  value  invested  in  non- 
taxable state  bonds  in  valuing  the  shares  for  taxation.  This 
decision,  however,  was  distinguished  by  the  court  rendering  it, 
from  the  general  rule,  on  the  ground  that  a  direct  contract  for 
the  exemption  of  such  bonds  from  taxation  had  been  made  by 
the  state  with  the  bank.  The  bonds  had  been  purchased  by  the 
bank  directly  from  the  state  and  the  court  said,  that  "there 
being  a  contract  between  the  state  and  officers  of  the  bank,  acting 
both  on  account  of  the  bank  and  in  behalf  of  the  shareholders, 
and  the  statute  making  the  bonds  non-taxable  for  any  purpose, 
effect  cannot  be  given  the  promised  immunity,  and  upon  which 
the  bank  acted,  unless  by  allowing  shareholders  the  right  to 
deduct  from  the  value  of  their  shares  that  proportion  of  the  value 
invested  in  non-taxable  state  bonds," 

98.  Stock  of  National  Banks: — Many  of  the  cases  in  which 
this  question  has  arisen  involved  the  taxation  by  a  state  of  stock 
of  national  banks.  It  is  to  be  noted  in  this  connection  that  the 
power  of  the  States  to  tax  the  stock  of  such  banks  depends  upon 
a  grant  of  authority  by  the  Congress  of  the  United  States/^- 
National  Banks  being  Federal  agencies,  except  for  this  grant 
of  power,  the  states  would  have  no  power  to  tax  the  stock  of  such 
banks.^"  A  territory,  however,  may  tax  a  Federal  agenej^ 
unless  restrained  by  the  enabling  act  or  other  act  of  Congress. 
Hence,  it  may  tax  the  shares  of  stock  of  National  banks,  notwith- 

"  Penrose  v.  Chaffraix,  106  La.  250;  30  So.  718. 

State  V.  Branin,  23  N.  J.  L.  484. 

Singer  Mfg.  Co.  v.  Heppenheimer,  58  N.  J.  L.  633;  34  Atl.  1061. 

Eichardson  v.  St.  Albans,  72  Vt.  1;  47  Atl.  100. 
"  In   re   Assessment   of   First   Nat.    Bank   of   Chickasha,   58   Okla.    508 ; 

160  Pac.  469. 
"  Rev.  Stats.  U.  S.  See.  5219. 
"  Van  Allen  v.  The  Assessors,  3  Wall.  (U.  S.)  572, 

Owensboro  Nat.  Bank  v.  Owensboro,  173  U.  S.  664. 


TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  39 

standing  the  fact  that  the  act  of  Congress  authorizing  the  states 
to  tax  such  stock  does  not  apply  to  the  territories.^* 

99.  Rule  Stated: — It  may  be  stated  as  the  general  rule, 
that,  unless  the  state  or  territory  has  contracted  to  exempt  the 
corporation  or  its  capital  stock  from  taxation,  the  shares  of  stock 
in  the  hands  of  the  stockholders  may  be  taxed,  without  regard  to 
the  value  of  tax-exempt  securities  in  which  the  capital  of  the 
corporation  is  invested. 


XV.    NOTES  AND  CERTIFICATES  OF 
INDEBTEDNESS. 

100.  This  treatise  is  confined  to  the  taxation  of  bonds.  Notes 
and  certificates  of  indebtedness,  therefore,  have  not  been  dis- 
cussed. The  general  principles  of  taxation  of  Federal,  state  and 
municipal  bonds,  however,  are  also  applicable  to  the  taxation  of 
notes  and  certificates  of  indebtedness  issued  by  the  United  States, 
the  several  states  or  the  subdivisions  thereof.  While  a  distinc- 
tion between  bonds  and  notes  or  certificates  of  indebtedness  is 
sometimes  made  by  statute,  ordinarily  the  distinction  is  one  of 
name  only.  In  a  recent  case  in  the  Supreme  Court  of  the  United 
States,  Mr.  Justice  Holmes,  in  delivering  the  opinion  of  the 
Court,  said,  "What  is  true  about  bonds  is  true  about  certificates 
of  indebtedness.  Indeed  it  is  difficult  to  see  any  distinction  be- 
tween the  two  as  they  are  commonly  known  to  the  business  world. 
The  essence  of  each  is  that  they  contain  a  promise  under  the  seal 
of  the  corporation,  to  pay  a  certain  sum  to  order  or  to 
bearer. '  '-'^  The  same  principles  of  taxation  have  frequently  been 
applied  to  bonds,  notes  and  certificates  of  indebtedness.^^ 

"  Talbot  V.  Silver  Bow  County,  139  U.  S.  438. 

People  V.  Moore,  1  Idaho  504. 

Silver  Bow  County  v.  Davis,  6  Mont.  306. 

First  Nat.  Bank  v.  Allbright,  13  N.  M.  514 ;  86  Pac.  548. 

Salt  Lake  City  Nat.  Bank  v.  Goldtng,  2  Utah  1. 
"Denver  v.  Home  Sav.  Bank,  236  U.  S.  101. 
■*  State  V.  Assessors,  111  La.  982;  36  So.  91. 

In  re  First  State  Bank  of  Oklahoma  City,  171  Pac.  864. 


40  TAXATION  OF  FEDERAL,  STATE  AND  MUNIdPALi  BONDS 


PART   2. 

An  analysis  of  the  tax  laws  of  the  United  States,  of  the  several 
States,  and  of  the  Territories  as  affecting  Federal,  State  and 
Municipal  Bonds. 

The  following  tables  are  based  upon  the  general  laws  of  the 
various  States  and  Territories,  an  examination  of  the  innumer- 
able private  acts  authorizing  bond  issues  being  impracticable. 
In  most  instances,  however,  where  special  acts  provide  that  the 
bonds  issued  thereunder  shall  be  exempt  from  taxation,  it  will  be 
found  that  the  general  acts  of  the  State  or  Territory  grant  a 
similar  exemption. 

The  laws  of  the  various  States  and  Territories  have  been 
examined  up  to  and  including  the  year  1921,  except  in  the  follow- 
ing instances  where  the  1921  laws  were  not  available  at  the  time 
of  going  to  press : — 

Arkansas  Maryland 

California  Massachusetts 

Colorado  New  Hampshire 

Connecticut  Ohio 

Florida  Pennsylvania 

Georgia  Rhode  Island 

Illinois  West  Virginia 

Maine  Wisconsin 


TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  41 


UNITED  STATES. 

Bonds  issued  by  the  United  States  are  exempt  from  taxation 
by  the  Federal  Government  (Rev,  Stats.  U.  S.,  Sec.  3701),  except 
certain  of  the  Liberty  Bonds  and  Victory  Loan  Notes  issued 
under  authority  of  the  following  acts  of  the  Congress  of  the 
United  States: 

Ch.  4,  Act  of  65th  Congress,  1st  Session,  approved  April  24,  1917. 
Ch.  56,  Acts  of  65th  Congress,  1st  Session,  approved  Sept.  24,  1917. 
Ch.  44,  Acts  of  65th  Congress,  2nd  Session,  approved  April  4,  1918. 
Ch.  142,  Acts  of  65th  Congress,  2nd  Session,  approved  July  9,  1918. 
Ch.  100,  Acts  of  65th  Congress,  3rd  Session,  approved  March  3,  1919 
(Vol.  40,  U.  S.  Stats,  at  large). 

The  Liberty  Bonds  and  Victory  Loan  Notes  which  are  subject 
to  graduated  additional  income  taxes,  commonly  known  as  sur- 
taxes, excess-profits  and  war-profits  taxes,  are  described  as  fol- 
lows : 

1.  First  Liberty  loan  converted  4  per  cent  bonds  of  1932- 
1947  (first  4s). 

2.  First  Liberty  loan  converted  4l^  per  cent  bonds  of  1932- 
1947  (first  4i/4s,  issue  of  May  9,  1918). 

3.  First  Liberty  loan  second  converted  4i/4  per  cent  bonds 
of  1932-1947  (first  414s,  issue  of  October  24,  1918). 

4.  Second  Liberty  loan  4  per  cent  bonds  of  1927-1942  (sec- 
ond 4s). 

5.  Second  Liberty  loan  converted  4i/4  per  cent  bonds  of  1927- 
1942  (second  414s). 

6.  Third  Liberty  loan  4^4  per  cent  bonds  of  1928   (third 

41/4S). 

7.  Fourth  Liberty  loan  414  per  cent  bonds  of  1933-1938 
(fourth  414s). 

8.  Victory  Liberty  loan  4%  per  cent  convertible  gold  notes 
of  1922-1923  (43/i  per  cent  Victory  notes). 

The  First  Liberty  loan  31/2  per  cent  bonds  of  1932-1947  and 
the  Victory  loan  3%  per  cent  convertible  gold  notes  of  1922-1923 


42  TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

are  not  subject  to  the  above  mentioned  graduated  additional  in- 
come taxes.  The  holders  of  the  Liberty  Bonds  and  Victory  Loan 
Notes  which  are  subject  to  such  graduated  additional  income 
taxes  are,  however,  entitled  to  certain  limited  exemptions  there- 
from as  follows: 

$5,000  in  the  aggregate  of  first  4s,  first  4i4s  (issues  of  May  9 
and  October  24, 1918),  second  4s  and  4i^s,  third  4i^s  and  fourth 
414s,  and  U.  S.  Certificates  of  Indebtedness. 

$30,000  of  first  414s  (issue  of  October  24,  1918,  only),  until 
the  expiration  of  two  years  after  the  termination  of  the  war,  as 
fixed  by  proclamation  of  the  President. 

$30,000  of  fourth  4i/4s,  until  the  expiration  of  two  years  after 
the  termination  of  the  war,  as  fixed  by  proclamation  of  the 
President. 

$30,000  in  the  aggregate  of  first  4s,  first  4^48  (issues  of  May 
9  and  October  24,  1918),  second  4s  and  4i^s,  third  414s,  and 
fourth  4l^s,  as  to  the  interest  received  on  and  after  January  1, 
1919,  until  the  expiration  of  five  years  after  the  termination  of 
the  war,  as  fixed  by  proclamation  of  the  President. 

$45,000  in  the  aggregate  of  first  4s,  first  4i/4s  (issue  of  May 
9,  1918,  only),  second  4s  and  4l^s,  and  third  414s,  as  to  the  inter- 
est received  after  January  1,  1918,  until  the  expiration  of  two 
years  after  the  termination  of  the  war,  as  fixed  by  proclamation 
of  the  President;  this  exemption  conditional  on  original  sub- 
scription to,  and  continued  holding  at  the  date  of  the  tax  return 
of  two-thirds  as  many  bonds  of  the  fourth  Liberty  loan. 

$20,000  in  the  aggregate  of  first  4s,  first  41^8  (issues  of  May 
9  and  October  24,  1918),  second  4s  and  414s,  third  414s,  and 
fourth  414s,  as  to  the  interest  received  on  and  after  January  1, 
1919;  this  exemption  conditional  upon  original  subscription  to, 
and  continued  holding  at  the  date  of  the  tax  return  of  one-third 
as  many  notes  of  the  Victory  Liberty  loan,  and  extending 
through  the  life  of  such  notes  of  the  Victory  Liberty  loan. 

(See  Acts  of  Congress  above  referred  to  and  Ch.  176,  Acts 
65th  Congress,  Second  Session,  approved  Sept.  24,  1918.) 

To  work  out  a  practical  illustration,  showing  how  the  exemp- 
tions above  provided  for  might  be  claimed,  let  us  suppose  that  an 
individual,  association  or  corporation,  subject  to  surtaxes,  excess- 
profits  or  war-profits  taxes,  now  or  hereafter  imposed  by  the 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  43 

United  States,  owns  $200,000  of  Liberty  Bonds  and  Victory 
Loan  Notes  as  follows : 

(a)  $25,000        First  4s  Nov.  15,  1917. 

(b)  25,000  First  ^V^s  May  9,  1918. 

(c)  40,000  First  Second  414s  Oct.  24,  1918. 

(d)  25,000  Second  4s  Nov.  15,  1917. 

(e)  15,000  Second  414s  May  9,  1918. 

(f)  25,000  Third  414s  May  9,  1918. 

(g)  35,000  Fourth  4i^s  Oct.  24,  1918. 
(h)  10,000  Victory  ^%s  May  20,  1919. 

In  connection  with  these  $200,000  bonds  the  following  exemp- 
tions are  permissible: 

$5,000.  of  bonds  in  the  aggregate,  included  within  Classes  A 
to  G  inclusive  are  permanently  exempt. 

30,000.  of  bonds  in  Class  C  are  exempt  until  the  expiration 
of  two  years  after  the  termination  of  the  war,  as  fixed 
by  proclamation  of  the  President. 

30,000.  of  bonds  in  Class  G  are  exempt  until  the  expiration  of 
two  years  after  the  termination  of  the  war,  as  fixed 
by  proclamation  of  the  President. 

30,000.  of  bonds  in  the  aggregate  included  within  Classes  A  to 
G  inclusive  are  exempt  as  to  the  interest  received  there- 
on, on  and  after  Jan.  1,  1919,  until  the  expiration  of 
five  years  after  the  termination  of  the  war,  as  fixed 
by  proclamation  of  the  President. 

45,000.  of  bonds,  in  the  aggregate  included  within  Classes  A, 
B,  D,  E,  &  F  are  exempt  as  to  interest  received  after 
Jan.  1,  1918,  until  the  expiration  of  two  years  after 
the  termination  of  the  war,  as  fixed  by  proclamation 
of  the  President.  This  exemption  is  conditioned  on 
original  subscription  to,  and  continued  holding  at  the 
date  of  the  tax  return  of  two-thirds  as  many  bonds 
of  the  Fourth  Liberty  loan. 


44  TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

20,000.  of  bonds  in  the  aggregate  included  within  Classes  A 
to  G  inclusive  as  to  interest  received  on  and  after  Jan. 
1,  1919.  This  exemption  is  conditioned  upon  original 
subscription  to  and  continued  holding  at  the  date  of 
the  tax  return  of  at  least  $6,666.67  Victory  Loan  Notes 
and  extends  through  the  life  of  such  notes  of  the  Vic- 
tory loan. 


$160,000. 

So  far  as  Liberty  Bonds  and  Victory  Loan  Notes  are  con- 
cerned, these  exemptions  are  all  that  can  be  had  from  Federal 
Income  surtaxes  and  profits  taxes. 

Bonds  issued  by  the  War  Finance  Corporation  are  exempt 
from  all  taxes  except  graduated  additional  income  taxes,  com- 
monly known  as  surtaxes  and  excess- profits  taxes  and  war-profits 
taxes,  now  or  hereafter  imposed  by  the  United  States,  upon  the 
income  or  profits  of  individuals,  partnerships,  corporations  or 
associations.  Interest  on  $5,000  of  such  bonds  owned  by  indi- 
viduals, partnerships,  corporations  or  associations  is  exempt  from 
such  graduated  income  taxes. 

Vol.  40,  U.  S.  Stats,  at  Large,  p.  511. 
Acts  65th  Congress,  2nd  Session,  Ch.  45. 

Farm  Loan  Bonds  issued  by  Federal  Land  Banks  or  by  Joint 
Stock  Land  Banks  and  the  income  derived  therefrom  are  exempt 
from  all  taxation. 

Vol.  39,  U.  S.  Stats,  at  Large,  p.  380. 

Acts  64th  Congress,  1st  Session,  Ch.  245. 

Smith  V.  Kansas  City  Title  &  Trust  Co.,  U.  S. 

Bonds  of  the  United  States  are  also  exempt  from  taxation  by 
the  various  States  composing  the  United  States  and  the  Terri- 
tories thereof.     (Rev.  Stats.  U.  S.,  Sec.  3701.) 

The  power  of  the  United  States  to  tax  bonds  of  the  States  and 
Territories  and  of  the  subdivisions  thereof  is  discussed  in  Sections 
10  and  15,  ante. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  45 

ALABAMA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Gen.  Acts  1919,  No.  328,  Sec.  2,  Subd.  (a). 

Hooper  v.  State,  141  Ala.  Ill ;  37  So.  662. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt. 

Gen.  Acts  1919,  No.  328,  Sec.  2,  Subd.  (a). 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  issued  by  counties  and  municipalities  are  exempt. 
Gen.  Acts  1919,  No.  328,  See.  2,  Subd.  (a). 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable  on  sixty  per  cent  of  fair  and  reasonable  cash 

value. 
Gen.  Acts  1919,  No.  328,  See.  5,  Subd.  (g)  and  Sec.  7. 

5.  State  Income  Taoc. 

Interest  upon  obligations  of  the  United  States  or  its 
possessions,  or  securities  issued  under  the  provisions  of 
the  Federal  Farm  Loan  Act  of  July  17,  1916,  or  bonds 
issued  by  the  War  Finance  Corporation,  or  obligations 
of  the  State  of  Alabama,  or  of  any  municipal  corpora- 
tion or  political  subdivision  thereof,  is  exempt. 

Gen.  Acts  1919,  No.  328,  Sec.  323,  Pt.  2,  Subd.  (e). 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


46  TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

ALASKA     (Territory) 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sec.  13. 

2.  Bonds  of  the  Territory. 

Alaska   is    prohibited   from    creating   or   assuming   any 

bonded  indebtedness  whatever. 
Comp.  Laws  1913,  Sec.  416. 

3.  Bonds  of  subdivisions  of  the  Territory. 

Municipal  corporations  of  Alaska  are  prohibited  from 
creating  or  assuming  any  bonded  indebtedness  what- 
ever. 

Comp.  Laws  1913,  Sec.  416. 

4.  Bonds  of  other  States  and  subdivisions. 

Exempt. 

Ante,  Sec.  16. 

Bonds  of  other  territories  and  subdivisions  are  taxable 
by  municipalities  unless  exempted  from  such  taxation 
by  Act  of  Congress.  The  Territory  itself  does  not  tax 
such  bonds. 

Laws  1913,  Ch.  69,  as  amended  by  Laws  1915,  Ch.  23. 

Ante,  Sec.  13. 

5.  Territorial  Income  Tax 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  47 

ARIZONA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt, 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt. 

Const.  Art.  9,  Sec.  2. 

Rev.  Stats.  1913,  Sec.  4846. 

3.  Bonds  of  subdivisions  of  the  State. 

Exempt. 

Const.  Art.  9,  Sec.  2. 

Rev.  Stats.  1913,  Sec.  4846. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Const.  Art.  9,  Sec.  2. 

Rev.  Stats.  1913,  See.  4846. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


48  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAIi  BONDS 

ARKANSAS 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

This  State  is  prohibited  from  issuing  any  interest-bearing 
treasury  warrants  or  scrip. 

Const.  Art.  16,  Sec.  1. 

In  Hays  v.  McDaniel,  130  Ark.  52;  196  S.  W.  934,  the 
issuance  of  State  notes  to  cover  deficiencies  in  the 
State's  general  revenue  fund  was  upheld.  These  notes, 
and  such  evidence  of  debt  as  the  State  may  issue,  are 
taxable. 

Dig.  of  Stats.  1916,  Sees.  8461  &  8462. 

Ouachita  County  v.  Rumph,  43  Ark.  525. 

3.  Bonds  of  subdivisions  of  the  State. 

Counties,  cities,  towns  and  municipalities  are  prohibited 
from  issuing  any  interest-bearing  evidence  of  indebted- 
ness except  such  bonds  as  may  be  authorized  by  law 
to  provide  for  payment  of  the  existing  indebtedness. 

Const.  Art.  16,  Sec.  1. 

Bonds  are,  however,  issued  by  school,  levee,  road,  bridge, 
drainage  and  other  classes  of  districts.  Such  bonds 
are  taxable. 

Dig.  of  Stats.  1916,  Sees.  8461  and  8462. 

Ouachita  County  v.  Rumph,  48  Ark.  525. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Dig.  of  Stats.  1916,  Sec.  8462. 

Eoff  V.  Kennefick-Hammond  Co.,  80  Ark.  138,  96  S.  W. 

986. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  49 

CALIFORNIA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt,  if  issued  after  November  4,  1902. 
Const.  Art.  13,  See.  1%. 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  of  counties,  cities  and  counties  and  municipal  cor- 
porations or  districts  including  school,  reclamation  and 
irrigation  districts  are  exempt,  if  issued  after  Novem- 
ber 4,  1902. 

Const.  Art.  13,  Sec.  1%. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Pol.  Code  1915,  Sec.  3607,  as  amended  by  Laws  1917,  Ch. 
226,  and  Sec.  3632. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  othenvise  noted. 


50  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

COLORADO 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  See.  3701. 

Courtright's  Stats.,  1914  Edition,  Sec.  5588. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Taxable. 

Courtright's  Stats.,  1914  Edition,  Sees.  5543  and  5581. 

3.  Bonds  of  subdivisions  of  the  State. 

Taxable. 

Courtright's  Stats.,  1914  Edition,  Sees.  5543  and  5581. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Courtright's  Stats.,  1914  Edition,  Sees.  5543,  5544  and 

5581. 
Denver  &  R.  G.  Co.  v.  Church,  17  Colo.  1. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  weU  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  51 

CONNECTICUT 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Eev.  Stats.  U.  S.,  Sec.  3701. 

Gen.  Stats.  Kev.  of  1918,  Sec.  1222. 

Coite  V.  Society  for  Savings,  32  Conn.  186 ;  6  Wall.  (U.  S.) 

594. 
Batterson  v.  Hartford,  50  Conn.  558. 
Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt,  when  issued  pursuant  to  any  act  which  provides 

for  exemption  from  taxation. 
Gen.  Stats.  Rev.  of  1918,  Sec.  1160,  as  amended  by  Pub. 

Laws  1919,  Ch.  159.     (See  Gen.  Stats.  Rev.  of  1918, 

Sec.  106.) 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  issued  by  counties,  towns,  cities,  boroughs  or  other 
municipal  taxing  districts,  after  April  1,  1917,  are  ex- 
empt. 

Gen.  Stats.  Rev.  of  1918,  See.  1222. 

Bonds  issued  by  any  town  or  city  in  aid  of  the  construc- 
tion of  the  railroad  mentioned  in  Gen.  Stats.  Rev.  of 
1918,  Sec.  1160,  as  amended  Pub.  Laws  1919,  Ch.  159, 
or  bonds  issued  to  refund  same  are  exempt  in  the  hands 
of  the  holders  thereof. 

Gen.  Stats.  Rev.  of  1918,  Sec.  1060. 

Stoddard  v.  Corbin,  109  Atl.  813. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable  in  the  hands  of  residents. 

Gen.  Stats.  Rev.  of  1918,  Sec.  1184. 

In  the  hands  of  non-residents,  not  taxable  unless  located 
in  any  town  more  than  seven  months  during  the  year. 

Gen.  Stats.  Rev.  of  1918,  Sec.  1148. 

Secured  Deht  Act:  Upon  payment  of  proper  fees  State 
Treasurer  will  endorse  certificate  upon  bonds  as  to  ex- 
emption thereof,  after  which  such  bonds  shall  be  ex- 
empt from  all  taxation  in  the  State  during  the  period 


52  TAXATION  OF  FEDERAL^  STATE  AND  MUNICIPAIj  BONDS 

for  which  said  tax  is  so  paid.     (Fee  is  2  per  cent  on 
face  amount  for  five  years,  or,  for  a  greater  or  less  num- 
ber of  years  at  the  same  rate.) 
Gen.  Stats.  Rev.  of  1918,  Sec.  1188. 

5.     State  Income  Tax.. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  53 

DELAWARE 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 
Rev.  Code  1915,  Sec.  1098. 
Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt. 

Rev.  Code  1915,  Sec.  1098. 

3.  Bonds  of  subdivisions  of  the  State. 

Exempt. 

Rev.  Code  1915,  Sec.  1098. 

4.  Bonds  of  other  States  and  subdivisions. 

Exempt,  but  income  taxed  after  Nov.  1,  1921. 
Rev.  Code  1915,  Sec.  1098. 
Laws  1921,  Ch.  9. 

5.  State  Income  Tax. 

Following  income  exempt : 

Interest  upon  obligations  of  a  state,  or  any  political  sub- 
division thereof,  or  upon  the  obligations  of  the  United 
States  or  its  possessions. 

Laws  1917,  Ch.  26,  as  amended  by  Laws  1919,  Ch.  30. 

After  Nov.  1,  1921,  following  income  only  exempt: 

Interest  upon  the  obligations  of  the  State  of  Delaware, 
or  any  political  subdivision  thereof,  or  upon  the  obliga- 
tions of  the  District  of  Columbia,  the  United  States  or 
its  possessions. 

Laws  1921,  Ch.  9. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


54  TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

DISTRICT    OF    COLUMBIA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  See.  13. 

2.  Bonds  of  the  District. 

The  only  bonded  debt  of  the  District  was  incurred  under 
Vol.  18,  U.  S.  Stats,  at  Large,  p.  116.  Under  the  terms 
of  section  7  of  that  act  the  bonds  are  exempt  from  state, 
federal  or  municipal  taxation. 

Grether  v.  Wright,  75  Fed.  742. 

3.  Bonds  of  subdivbions  of  the  Dbtrict. 

There  are  no  subdivisions  of  the  District,  the  corporations 
of  Georgetown  and  Washington  having  been  abolished 
by  Vol.  16,  U.  S.  Stats,  at  Large,  p.  419. 

4.  Bonds  of  other  States  and  subdivbions. 

Exempt. 

Ante,  Sec.  16,  for  discussion  of  the  power  of  a  Federal 

Agency  to  tax  bonds  of  a  state  or  subdivision  thereof. 
Bonds  of  territories  of  the  U.  S.  and  subdivisions  thereof 

are  taxable  unless  exempted  from  taxation  by  act  of 

Congress. 
U.  S.  Stats,  at  Large,  Vol.  19,  Ch.  117,  p.  396. 
Ante,  See.  13. 

5.  District  Income  Tax. 

None. 

Bonds  of  the  District  are  exempt  from  taxation  under 

the  Federal  Income  Tax  Law. 

U.  S.  Revenue  Law  1918,  Sec.  213. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  55 

FLORIDA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Kev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Bonds  issued  under  Laws  1885,  Ch.  3564,  are  exempt. 

Eev.  Gen.  Stats.  1920,  Sec.  1045. 

No  other  statute  exempting  state  bonds  apparently  exists. 
The  constitutionality  of  this  exemption  has  never  been 
decided  by  the  Supreme  Court  of  Florida.  The  Con- 
stitution authorizes  the  legislature  to  exempt  property 
from  taxation  for  municipal,  educational,  literary,  scien- 
tific, religious  or  charitable  purposes. 

Ante,  Sees.  24-45. 

Other  bonds  are  taxable. 

Rev.  Gen.  Stats.,  1920,  Sees.  694  and  696. 

3.  Bonds  of  subdivisions  of  the  State. 

Taxable. 

Rev.  Gen.  Stats.  1920,  Sees.  694  and  696. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Rev.  Gen.  Stats.  1920,  Sees.  694  and  696. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


56  TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAIj  BONDS 

GEORGIA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt. 

Miller  v.  Wilson,  60  Ga.  505. 

3.  Bonds  of  subdivisions  of  the  State. 

Exempt. 

Penick  v.  Foster,  129  Ga.  217;  58  S.  E.  773. 

In  this  ease  the  court  stated  that  the  single  question  to  be 
determined  was  whether  bonds  issued  by  a  municipality 
of  the  State  of  Georgia  were  taxable  in  the  hands  of  a 
citizen  and  resident  of  the  State.  The  Court  held  that 
they  were  not  taxable  by  force  of  the  Constitution  itself, 
and  if  taxable  at  all,  were  only  so  when  [taxed  by]  the 
General  Assembly  either  in  express  terms,  or  in  such 
language  that  no  other  conclusion  could  be  reached  than 
that  such  was  the  intention  of  that  body.  The  court 
also  said  that  there  was  nothing  in  the  various  tax  acts 
from  1880  down  to  the  time  of  its  decision  (1907)  which 
either  in  express  terms,  or  by  necessary  implication, 
indicated  that  it  was  the  purpose  of  the  General  Assem- 
bly to  levy  a  tax  for  state  or  county  purposes  upon  the 
bonds  of  the  State,  or  any  of  its  political  subdivisions. 
No  such  tax  act  has  been  found  since  1907  down  to  the 
present  time,  hence  bonds  of  subdivisions  of  the  State 
would  seem  to  be  exempt  in  the  hands  of  any  holder. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Park's  Anno.  Code,  Sec.  1002. 

5.  State  Income  Tax. 

None. 

Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  57 

HAWAII     (Territory) 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  See.  3701. 

Ante,  Sec.  13. 

2.  Bonds  of  the  Territory. 

Exempt. 

Laws  1919,  Act  No.  207,  Sec.  4. 

3.  Bonds  of  subdivisions  of  the  Territory. 

Bonds  of  counties  or  cities  and  counties  are  exempt. 
Rev.  Laws  1915,  Sec.  2182. 

4.  Bonds  of  other  States  and  subdivisions. 

Exempt. 

Ante,  Sec.  16. 

Bonds  of  other  territories  and  subdivisions  are  taxable, 

unless  exempted  from  taxation  by  act  of  Congress. 
Rev.  Laws  1915,  Sees.  1236  and  1240,  as  amended  by  Laws 

1915,  Act  222,  and  Sec.  1255. 
Ante,  Sec.  13. 

5.  Territorial  Income  Tax. 

Taxes  interest  upon  notes,  bonds  and  other  securities, 
except  such  bonds  of  the  Territory  of  Hawaii  or  of 
municipalities  created  by  said  Territory,  the  princi- 
pal and  interest  of  which  are  by  the  law  of  their  issu- 
ance exempt  from  all  taxation. 

Rev.  Laws  1915,  Ch.  94. 


The  income  derived  from  bonds  of  the  Territory  or  its 
subdivisions  is  exempt  from  taxation  under  the  Federal 
Income  Tax  Law. 

U.  S.  Revenue  Law  1918,  Sec.  213. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


58  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

IDAHO 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.  See.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Taxable. 

Comp.  Stats.  1919,  Sees.  3096  and  3102. 

3.  Bonds  of  subdivisions  of  the  State. 

Taxable. 

Comp.  Stats.  1919,  Sees.  3096  and  3102. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Comp.  Stats.  1919,  Sees.  3096,  3102  and  3268. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  othervrise  noted. 


TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAIi  BONDS  59 

ILLINOIS 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 
People  V.  Bradley,  39  111.  130. 
Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Taxable. 

Rev.  Stats.  1917  (Hurd),  Ch.  120,  See.  1. 

3.  Bonds  of  subdivisions  of  the  State. 

Taxable. 

Rev.  Stats.  1917  (Hurd),  Ch.  120,  Sec.  1. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Rev.  Stats.  1917  (Hurd),  Ch.  120,  Sec.  1. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  aa  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


60  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 


INDIANA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  See.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt,  if  issued  after  April  23,  1903,  and  bearing  in- 
terest. 

Burns  Stats.  Sec.  10156. 

Laws  1919,  Ch.  59,  Sec.  5,  as  amended  by  Laws  1921,  Ch. 
222. 

Bonds  issued  by  the  Indiana  State  Board  of  Argriculture 
are  exempt. 

Laws  1921,  Ch.  4. 

3.  Bonds  of  subdivisions  of  the  State. 

Municipal  bonds  bearing  interest  are  exempt,  if  issued 
after  April  23,  1903. 

Burns  Stats.  Sec.  10156. 

Laws  1919',  Ch.  59,  Sec.  5,  as  amended  by  Laws  1921,  Ch. 
222. 

County  and  township  bonds  bearing  interest  at  a  rate 
not  greater  than  four  and  one-half  per  cent  issued  for 
road  improvement  after  March  4,  1911,  are  exempt. 

Burns  Stats.  Sec.  7726A. 

Laws  1919,  Ch.  59,  Sec.  5,  as  amended  by  Laws  1921,  Ch. 
222. 

County  bonds  for  the  construction  of  court  houses  and 
other  public  buildings  issued  under  Laws  1917,  Ch.  156, 
as  amended  by  Laws  2nd  Extra  Session,  1920,  Ch.  13, 
are  exempt  under  the  provisions  of  that  act.  County 
bonds  for  the  erection  of  colosseums,  auditoriums,  me- 
morial or  victory  halls,  etc.,  issued  under  Laws  1919,  Ch. 
55,  are  exempt,  under  the  provisions  of  Sec.  5  of  that 
Act. 

See  also  Laws  1919,  Ch.  115,  authorizing  the  issuance  of 
county  or  city  bonds  for  memorials  which  are  exempt 
from  taxation  by  Sec.  10  thereof. 

County  road  bonds  issued  after  March  13,  1919,  bearing 
interest  at  a  rate  not  greater  than  five  per  cent  per 


TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  61 

annum,  under  Laws  1919,  Ch.  112,  are  exempt  under  the 
provisions  of  that  act. 

Sanitaiy  district  bonds  are  exempt. 

Burns  Stats.  Sec.  6174i  as  amended  by  Laws  1919^,  Ch. 
11,  Sec.  4. 

Bonds  of  school  corporations,  issued  after  July  20,  1920, 
redeemable  within  any  determinate  period  of  time  not 
exceeding  five  years  and  bearing  interest  at  a  rate  not 
exceeding  six  per  centum  per  annum  are  exempt. 

Laws  2nd  Extra  Session  1920,  Ch.  4,  as  amended  by  Laws 
1921,  Ch.  4. 

Bonds  issued  by  or  in  the  name  of  municipalities, 
political  or  civil  subdivisions  or  taxing  districts,  after 
March  10,  1921,  for  streets,  highways,  drains, 
levees,  parks,  docks,  waterways,  boulevards,  play- 
grounds, bridges,  sewage  disposal  plants  and  other  im- 
provements of  public  benefit,  which  are  payable  from 
special  assessments  or  special  taxes,  are  exempt. 

Laws  1921,  Ch.  4,  and  Ch.  222. 

Other  bonds,  unless  exempted  by  the  acts  authorizing 
their  issuance,  are  taxable. 

Laws  1919,  Ch.  59,  Sec.  63. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Laws  1919,  Ch.  59,  Sec.  63. 

Burns  Stats.  See.  10160. 

Buck  V.  Beach,  164  Ind.  37,  rev.  206  U.  S.  392. 

5.  State  Income  Tax. 

The  income  derived  from  bonds  which  are  exempt  from 
taxation  is  taxable  as  personal  property. 

Laws  1919,  Ch.  59,  Sec.  25. 

A  constitutional  amendment  providing  for  an  income  tax 
was  agreed  to  by  the  Legislatures  of  1919  and  1921, 

See  Laws  1919,  Ch.  247,  and  Laws  1921,  Ch.  291. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  bands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


62  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAIj  BONDS 

IOWA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Eev.  Stats.  U.  S.,  See.  3701. 

Comp.  Code  1919,  Sec.  4504. 

Ottumwa  Sav.  Bank  v.  Ottumwa,  95  Iowa  176;  63  N.  W. 

672. 
Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Taxable  at  rate  of  5  mills  on  dollar  of  actual  valuation. 
Comp.  Code  1919,  Sees.  4490  and  4504. 

3.  Bonds  of  subdivisions  of  the  State. 

Municipal,  school,  and  drainage  bonds  or  certificates  is- 
sued by  any  municipality,  school  district,  drainage  dis- 
trict or  county  within  the  State  of  Iowa,  after  July  4, 
1909,  are  exempt. 

Comp.  Code  1919,  See.  4482, 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable  at  rate  of  5  mills  on  doUar  of  actual  valuation. 
Comp.  Code  1919,  Sees.  4490  and  4504. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  63 

KANSAS 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Eev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt. 

Gen.  Stats.  1915,  See.  11302. 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  of  counties,  cities,  school  districts  and  other  mu- 
nicipal bonds  are  exempt. 
Gen.  Stats.  1915,  Sec.  11302. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Gen.  Stats.  1915,  Sec.  11149. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


64  TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

KENTUCKY 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt, 

Kev.  Stats.  U.  S.,  Sec,  3701, 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt. 

Const.  Sec.  171,  as  amended  by  Laws  1914,  Ch.  94. 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  of  counties,  municipalities,  taxing  and  school  dis- 
tricts are  exempt. 
Const.  Sec.  171,  as  amended  by  Laws  1914,  Ch.  94. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

CarroU's  Stats.  1915,  Sec.  4020. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  65 

LOUISIANA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Kev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt. 

Const.  1921,  Art.  10,  Sec.  4. 

3.  Bonds  of  subdivisions  of  the  State. 

Exempt. 

Const.  1921,  Art.  10,  Sec.  4. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Marrs  Rev.  Stats.  Sec.  6202;  Laws  1917,  Act  No.  15. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


66  TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAIj  BONDS 

MAINE 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt,  if  issued  after  February  1,  1909. 
Rev.  Stats.  1916,  Ch.  10,  Sec.  6,  as  amended  by  Laws  1919, 
Ch.  221. 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  of  counties,  municipalities,  village  corporations, 
water  districts  or  sewerage  districts,  issued  after  Feb- 
ruary 1,  1909,  are  exempt. 

Rev.  Stats.  1916,  Ch,  10,  Sec.  6,  as  amended  by  Laws  1919, 
Ch.  221,  and  Laws  Spec.  Session  1919,  Ch.  247. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Rev.  Stats.  1916,  Ch.  10,  Sees.  2,  5  and  14. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  67 

MARYLAND 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Provision  is  made  in  Annotated  Code  1911,  p.  1795,  for 
the  taxation  of  bonds  of  territories  and  of  the  District 
of  Columbia,  but  this  provision  is  clearly  unconstitu- 
tional. 

Grether  v.  Wright,  75  Fed.  742. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt,  if  issued  after  March  12, 1914,  Laws  1914,  Ch.  43. 

Road  Bonds  issued  under  Laws  1908,  Ch.  141,  are  exempt 
from  state,  county  and  municipal  taxation  irrespective 
of  the  date  of  issuance  under  the  terms  of  that  act. 

3.  Bonds  of  subdivisions  of  the  State. 

Exempt,  if  issued  after  March  12,  1914,  and  bonds  of 
counties  and  municipal  corporations,  sold  prior  to 
March  12,  1914,  under  terms  rendering  such  counties, 
cities  or  municipal  corporations  liable  for  the  State  tax 
thereon,  are  likewise  exempt  from  all  taxation. 

Laws  1914,  Ch.  43. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable  in  the  hands  of  residents  only. 

Anno.  Code  1911,  p.  1795. 

Mayor  v.  Hussey,  67  Md.  112 ;  9  Atl.  19. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


68  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 


MASSACHUSETTS 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt,  if  issued  since  Jan.  1,  1906. 

Laws  1909,  Ch.  490  Pt.  1,  See.  5,  Clause  15,  as  amended 

by  Laws  1914,  Ch.  83. 
Exempt  if  income  taxed  under  Laws  1916,  Ch.  269, 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  of  counties,  cities,  towns,  fire,  water,  light,  watch 
and  improvement  districts,  issued  on  or  after  May  1, 
1908,  stating  on  their  face  that  they  are  exempt  from 
taxation,  are  exempt. 

Laws  1909,  Ch.  490,  Pt.  1,  Sec.  5,  CI.  15,  as  amended  by 
Laws  1914,  Ch.  83. 

Exempt  if  income  taxed  under  Laws  1916,  Ch,  269. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Laws  1909,  Ch.  490,  Pt.  1,  Sec.  2. 

Hall  V.  County  Comr's.,  92  Mass.  100. 

5.  State  Income  Tax. 

Income  derived  from  bonds  not  exempt  from  taxation 
by  Laws  1909,  Ch.  490,  Pt.  1,  See.  5,  is  subject  to  an 
income  tax. 

Laws  1916,  Ch.  269,  Sec.  2. 

Note:  Deposits  in  savings  institutions  are  exempt  from  taxation,  if  invested 
in  bonds  of  the  State,  issued  after  July  1,  1906,  or  in  bonds  of 
counties,  cities,  towns,  fire  districts,  or  water  supply  districts,  issued 
on  or  after  May  1,  1908,  stating  on  their  face  that  they  are  exempt 
from  taxation.  Laws  1909,  Ch.  490,  Pt.  3,  Sec.  21.  Personal 
property  of  fraternal  orders  operating  under  the  lodge  system  and 
providing  life,  sick,  accident  or  other  benefits  for  members  is 
exempt  from  taxation.     Laws  1917,  Ch.  204. 

Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  69 

MICHIGAN 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  See.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Highway  bonds  issued  under  Act  No.  25,  Pub.  Acts  Extra 
Session  1919,  are  exempt  under  the  terms  of  that  act. 

Soldiers'  Bonus  Bonds  issued  under  Pub.  Acts  No.  1,  Laws 
1st  Extra  Session  1921,  as  amended  by  Senate  Enrolled 
Act  No.  1  of  the  2nd  Extra  Session  1921,  approved  July 
7,  1921,  are  exempt  under  the  terms  of  that  act. 

Other  bonds  are  taxable  in  the  hands  of  residents  only, 
unless  exempted  by  the  acts  authorizing  their  issuance. 

Comp.  Laws  1915,  Sees.  3995  &  4002. 

Village  of  Howell  v.  Gordon,  127  Mich.  517;  86  N.  W. 
1042. 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  of  counties,  townships,  cities,  villages  and  school 
districts  are  exempt  from  taxation,  if  issued  after  Au- 
gust 31,  1909. 

Comp.  Laws  1915,  Sec.  4194. 

4.  Bonds  of  other  States  aoid  subdivisions. 

Taxable  in  the  hands  of  residents. 

Comp.  Laws  1915,  Sees.  3995  &  4002. 

Secured  Debt  Act:  The  owner  of  any  such  bonds  may 
pay  to  the  County  Treasurer  of  the  county  in  which 
he  resides  a  tax  of  one-half  of  one  per  centum  of  the 
face  value  thereof  whereupon  the  Treasurer  shall  en- 
dorse thereon  or  give  a  receipt  certifying  that  the  bonds 
are  exempt  from  taxation. 

Comp.  Laws  1915,  Sees.  4282-4286,  as  amended  by  Laws 
1917,  Act.  No.  173. 

5.  State  Income  Tax. 

None. 

Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


70  TAXATION  OF  FEDERAL,  STATE  AND  MUNTCIPAIi  BONDS 

MIN  NESOT A 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Farmers  Bank  v.  Minnesota,  232  U.  S.  516. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt,  if  issued  by  the  State  or  by  any  governmental 

board  thereof  after  April  18,  1911. 
Gen.  Stats.  1913,  See.  1971. 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  issued  by  any  county,  city,  village,  township,  com- 
mon or  independent  school  district  or  any  governmental 
board  of  any  county,  city  or  village  thereof,  after 
April  18,  1911,  are  exempt. 

Gen.  Stats.  1913,  See.  1971. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable  at  rate  of  three  mills  on  each  dollar  of  fair  cash 

value. 
Gen.  Stats.  1913,  Sees.  1969, 1994  and  2316. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OP  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  71 

MISSISSIPPI 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt,  if  issued  after  April  1,  1906. 
Hemingway's  Code  1917,  See.  6879,  as  amended  by  Laws 
1918,  Ch.  183. 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  of  drainage  districts  are  exempt. 

Laws  1908,  Ch.  141. 

Bonds  of  counties,  municipalities,  school  and  levee  dis- 
tricts and  other  political  subdivisions  or  districts  of  the 
State  are  exempt,  if  issued  after  April  1, 1906. 

Hemingway's  Code  1917,  Sec.  6879,  as  amended  by  Laws 
1918,  Ch.  183. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Hemingway's  Code  1917,  Sec.  6898. 

5.  State  Income  Tax. 

State  and  municipal  bonds,  which  by  the  law  of  their  issu- 
ance are  exempt  from  taxation,  are  not  subject  to  the 
State  Income  Tax. 

Hemingway's  Code  1917,  Sec.  4937,  and  Ch.  120. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


72  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

MISSOURI 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

St.  Louis  Bldg.  Ass'n.  v.  Lightner,  47  Mo.  393. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Taxable. 

Rev.  Stats.  1919,  Sec.  12766. 

3.  Bonds  of  subdivbions  of  the  State. 

Taxable. 

State  V.  Gordon,  268  Mo.  713 ;  188  S.  W.  160. 

Vice  V.  City  of  Kirksville,  280  Mo.  348;  217  S.  W.  77. 

Rev.  Stats.  1919,  Sec.  12766. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Rev.  Stats.  1919,  Sec.  12766. 

A  Secured  Debts  Act  was  passed  in  1917  (H.  B.  406,  p. 
539)  which  provides  for  payment  of  graduated  taxes 
to  State,  County,  and  cities  &  Towns,  upon  payment 
of  which  the  secured  debt  shall  be  exempt  from  all  other 
or  further  taxation  by  the  State,  Counties,  Cities, 
Towns,  Villages,  School  Districts,  and  other  legal  sub- 
divisions of  the  State. 

Rev.  Stats.  1919,  Sees.  13137-13142,  as  amended  by  Laws 
1921,  p.  667. 

5.  State  Income  Tax. 

Interest  upon  obligations  of  a  state  or  any  political  sub- 
division thereof,  or  upon  the  obligations  of  the  U.  S.,  or 
its  possessions  is  exempt. 

Laws  1917  (S.  B.  415),  p.  524,  Sec.  4. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL^  STATE  AND  MUNICIPAL  BONDS  73 

MONTANA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Taxable. 

Pol.  Code  1907,  Sees.  2498  and  2511. 

Seven  per  centum  of  the  true  value  of  such  bonds  is  taken 
as  the  basis  for  the  taxation  thereof,  and  the  tax  is 
levied  upon  that  proportion  of  the  true  value. 

Laws  1919,  Ch.  51,  as  amended  by  Laws  1921,  Ch.  248. 

The  legislature  is  prohibited  from  exempting  from  tax- 
ation property  not  enumerated  in  Const.  Art.  12,  Sec.  2. 

Cruse  V.  Fisehl,  55  Mont.  258,  175  Pac.  878. 

3.  Bonds  of  subdivisions  of  the  State. 

Taxable  upon  the  same  basis  as  State  bonds. 

Laws  1919,  Ch.  51,  as  amended  by  Laws  1921,  Ch.  248. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable  on  the  same  basis  as  bonds  of  the  State. 

Pol.  Code  1907,  Sec.  2498. 

Laws  1919,  Ch.  51,  as  amended  by  Laws  1921,  Ch.  248. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


74  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAIi  BONDS 

NEBRASKA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Dixon  County  v.  Halstead,  23  Neb.  697 ;  37  N.  W.  621. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Taxable. 

Laws  1921,  Ch.  133. 

3.  Bonds  of  subdivisions  of  the  State. 

Taxable. 

Laws  1921,  Ch.  133. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Laws  1921,  Ch.  133. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  75 

NEVADA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Bev.  Stats.  U.  S.,  See.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Taxable. 

Rev.  Laws  1912,  Sees.  3621  and  3622. 

3.  Bonds  of  subdivisions  of  the  State. 

Taxable. 

Rev.  Laws  1912,  Sees.  3621  and  3622. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Rev.  Laws  1912,  Sees.  3621  and  3622. 

5.  State  bicome  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


76  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

NEW    HAMPSHIRE 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Opinion  of  the  Justices,  77  N.  Hamp.  611 ;  93  Atl.  311. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt,  if  bearing  interest  at  a  rate  not  exceeding  5  per 

cent. 
Laws  1913,  Ch.  112,  Sec.  1. 

3.  Bonds  of  subdivbions  of  the  State. 

Bonds  of  counties,  municipalities,  school  districts  or  vil- 
lage precincts  bearing  interest  at  a  rate  not  exceeding 
five  per  cent  are  exempt. 

Laws  1913,  Ch.  112,  Sec.  1. 

4.  Bonds  of  other  States  and  subdivbions. 

Taxable. 

Public  Stats.  Title  9,  Ch.  55,  Sec.  7,  Subd.  1,  and  Ch.  56. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  77 

NEW    JERSEY 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Kev.  Stats.  U.  S.,  Sec.  3701. 

Laws  1918,  Ch.  236  as  amended  by  Laws  1920,  Ch.  296. 

State,  et  al.  v.  Haight,  34  N.  J.  L.  130. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt. 

Laws  1918,  Ch.  236,  as  amended  by  Laws  19'20,  Ch.  296. 

3.  Bonds  of  subdivisions  of  the  State. 

Exempt. 

Laws  1918,  Ch.  236  as  amended  by  Laws  1920,  Ch.  296. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Laws  1918,  Ch.  236,  Sees.  202  and  301. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


78  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

NEW    MEXICO 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt, 

Rev.  Stats.  U.  S.,  See.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt. 

Const.  Art.  8,  See.  3. 

3.  Bonds  of  suhdivbions  of  the  State. 

Bonds  of  counties,  towns,  cities,  and  districts  are  exempt. 
Const.  Art.  8,  See.  3. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Stats.  Anno.  1915,  Sees.  5427  and  5437. 

5.  State  hicome  Tax. 

Interest  upon  bonds  or  securities  of  the  United  States,  or 

the  State,  or  any  municipality  thereof  is  exempt. 
Laws  1919,  Ch.  123. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  79 

NEW    YORK 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  See.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt. 

Tax  Law,  Sec.  4,  Subd.  6. 

Laws  1920,  Ch.  647. 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  of  all  civil  subdivisions  of  the  State  are  exempt. 
Tax  Law,  Sec.  4,  Subd.  6. 
Laws  1920,  Ch.  647. 

4.  Bonds  of  other  States  and  subdivisions. 

Exempt,  except  as  to  income. 
Laws  1920,  Ch.  647. 

5.  State  Income  Tax. 

The  income  derived  by  natural  persons,  resident  in  the 
State  from  bonds  other  than  bonds  of  the  U.  S.  or  its 
possessions,  or  bonds  issued  under  the  Federal  Farm 
Loan  Act  of  July  17,  1916,  or  bonds  issued  by  the  War 
Finance  Corporation,  or  obligations  of  the  State  of 
New  York  or  of  any  political  subdivision  thereof,  or 
bonds  upon  which  the  Secured  Debt  Tax,  provided  for 
in  Sec.  332  of  the  Tax  Law,  has  been  paid  since  June 
1,  1917,  accrued  during  the  years  for  which  said  tax 
was  paid,  is  subject  to  an  income  tax.  Income  derived 
from  bonds  by  a  non-resident  is  not  taxable.  Tax  Law, 
See.  359,  as  amended  by  Laws  1920,  Ch.  695.  See 
Travis  v.  Yale  &  Towne  Mfg.  Co.  252  U.  S.  60.  It 
will  be  noted  that  bonds  upon  which  the  Secured  Debt 
Tax  has  been  paid  since  June  1,  1917,  are  exempted 
from  the  provisions  of  the  above  act.  The  original  Se- 
cured Debt  Tax  Law,  Laws  1911,  Ch.  802,  perpetually 
exempted  from  future  taxation  securities  upon  which 


80  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

the  tax  had  been  paid  under  that  act.  The  Income 
Tax  Law  of  1919  attempts  to  withdraw  that  exemption 
and  to  subject  to  taxation  income  derived  from  bonds 
which  the  State,  for  a  valuable  consideration  had  con- 
tracted to  exempt  from  future  taxation.  It  would  seem 
that  this  provision  of  the  act  impairs  the  obligations  of 
contracts  and  is  unconstitutional.  See  discussion  of  the 
right  of  a  State  to  withdraw  an  exemption  from  taxa- 
tion, ante,  Sees.  46-52. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  81 

NORTH    CAROLINA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.,  11-12. 

2.  Bonds  of  the  State. 

Exempt,  if  issued  since  January  1,  1853. 
Consol.  Stats.  1919,  Vol.  2,  Sec.  7410. 
PuUen  V.  Corporation  Comm'n.  152  N.  C.  548;  68  S.  E. 
155. 

3.  Bonds  of  subdivisions  of  the  State. 

Taxable. 

Const.  Art.  5,  See.  3. 

Consol.  Stats.  1919,  Vol.  1,  Sec.  2682. 

Com'rs  V.  Webb,  160  N.  C.  594;  76  S.  E.  552. 

3a.  Possibly  bonds  of  municipal  corporations  of  the  State 
may  be  exempted  from  local  taxation. 

Consol.  Stats.  1919,  Vol.  1,  Sec.  2682. 

In  Com'rs  v.  Webb,  supra,  Supreme  Court  of  N,  C.  said, 
"We  do  not  know  of  any  county  or  municipal  bonds 
being  exempted,  but,  if  it  can  be  done,  the  exemption 
would  only  extend  to  taxes  of  the  county  or  municipality 
issuing  such  bonds. ' ' 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Const.  Art.  5,  Sec.  3. 

Pub.  Laws  1919,  Ch.  203,  Sees.  30,  39  and  40. 

5.  State  Income  Tax. 

The    income    derived   from    property   already   taxed    is 

exempt. 
Laws  1919,  Ch.  90. 

Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  weU  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


82  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

NORTH    DAKOTA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Kev.  State.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Bank  Bonds,  issued  under  Laws  1919,  Ch.  148,  are  exempt 
from  all  taxation  under  the  terms  of  that  act. 

Mill  &  Elevator  Bonds,  issued  under  Laws  1919,  Ch.  153, 
are  likewise  exempt  from  all  taxation  under  the  terms 
of  that  act. 

Prior  to  the  amendment  of  Section  176  of  the  Constitu- 
tion (Laws  1919,  Ch.  90)  the  power  to  exempt  bonds 
from  taxation  was  questionable.  Other  bonds  are  tax- 
able at  the  rate  of  three  mills  on  each  dollar  of  the 
fair  cash  value,  except  in  the  hands  of  incorporated 
banks  or  building  and  loan  associations  situated  in  the 
State. 

Laws  1917,  Ch.  230,  Sec.  1. 

3.  Bonds  of  subdivisions  of  the  State. 

Taxable  at  the  rate  of  three  mills  on  each  dollar  of  the 
fair  cash  value  except  in  the  hands  of  incorporated  banks 
or  building  and  loan  associations  situated  in  the  State. 
Laws  1917,  Ch.  230,  Sec.  1. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable  at  the  rate  of  three  mills  on  each  doUar  of  the 
fair  cash  value  except  in  the  hands  of  incorporated 
banks  or  building  and  loan  associations  situated  in  the 
State. 

Laws  1917,  Ch.  230,  Sec.  1. 

5.  State  Income  Tax. 

The  income  derived  from  bonds  of  the  United  States  and 
its  possessions,  bonds  of  the  State  and  the  political  sub- 
divisions thereof,  and  from  bonds  issued  under  the  pro- 
visions of  the  Federal  Farm  Loan  Act  of  July  17,  1916, 
and  amendments  thereto,  is  exempt. 

Laws  1921,  Ch.  123. 

Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  83 

OHIO 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt,  if  issued  prior  to  Jan.  1, 1913. 

Const.,  Art.  12,  Sec.  2. 

Taxable,  if  issued  since  Jan.  1,  1913. 

Const.  Art.  12,  Sec.  2. 

Anno.  Gen.  Code,  Sec.  5328. 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  of  cities,  villages,  hamlets,  counties,  or  townships, 
or  bonds  which  have  been  issued  in  behalf  of  the  public 
schools  are  exempt,  if  issued  prior  to  Jan.  1,  1913. 

Bonds  issued  since  that  date  are  taxable. 

Const.  Art.  12,  Sec.  2. 

Anno.  Gen.  Code,  Sec.  5328. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Anno.  Gen.  Code,  Sec.  5328. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


84  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

OKLAHOMA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt. 

Rev.  Stats.  1910,  Sec.  7302,  as  amended  by  Laws  1915, 
Ch.  107. 

Article  5,  Sec.  50  of  the  Constitution  prohibits  the  legis- 
lature from  exempting  property  from  taxation  "except 
as  otherwise  provided  in  this  constitution."  The  Su- 
preme Court  of  Oklahoma  has  held,  however,  that  this 
prohibition  was  not  intended  to  deny  to  the  State  the 
power  to  exempt  its  own  bonds  from  taxation.  Such 
bonds  were  held  not  to  constitute  property  within  the 
meaning  of  Art.  5,  Sec.  50  of  the  Constitution. 

See  In  Re  First  Nat.  Bank  of  Chickasha,  58  Okla.  508; 
160  Pac.  469.  See  also  In  Re  First  State  Bank  of  Okla- 
homa City,  171  Pac.  864. 

See  ante,  'Sees.  24-45. 

3.  Bonds  of  subdivisions  of  the  State. 

Exempt. 

Rev.  Stats.  1910,  Sec.  7302,  as  amended  by  Laws  1915, 
Ch.  107. 

The  constitutionality  of  this  exemption  has  not  expressly 
been  sustained  by  the  Supreme  Court  of  Oklahoma,  but, 
as  the  political  subdivisions  of  a  state  are  merely  its 
agencies  created  for  governmental  purposes,  it  would 
seem  that  the  reasoning  of  the  Supreme  Court  in  the 
case  of  In  Re  Assessment  of  First  National  Bank  of 
Chickasha,  supra,  is  likewise  applicable  to  the  bonds  of 
such  subdivisions,  and  that  such  bonds  also  are  not 
property  within  the  meaning  of  Art.  5,  Sec.  50  of  the 
Constitution. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  85 

See  Penick  v.  Foster,  129  Ga.  217;  58  S.  E.  773,  where 
the  Supreme  Court  of  Georgia  sustained  this  construc- 
tion. 
See  ante,  Sees.  24-45. 

4.  Bonds  of  other  States  and  subdivbions. 

Taxable. 

Rev.  Stats.  1910,  Sec.  7302  as  amended  by  Laws  1915, 
Ch.  107. 

Secured  Deht  Act :  The  owner  of  any  bond  may  pay  to 
the  county  treasurer  a  tax  of  two  per  centum  of  the 
face  amount  thereof  for  five  years,  or  for  a  greater 
or  less  number  of  years  at  the  same  rate,  whereupon 
the  county  treasurer  shall  make  an  endorsement  on  the 
bond  certifying  that  it  is  exempt  from  taxation  for  the 
period  for  which  the  tax  has  been  paid. 

Laws  1917,  Ch.  264. 

Act  cited  in  Salmon  v.  Johnson,  78  Okla.  1821;  189  Pac. 
537.  This  act  apparently  has  never  been  sustained  by 
the  Supreme  Court  of  Oklahoma  and  in  view  of  the 
provisions  of  Art.  10,  Sec.  5  of  the  Constitution  declar- 
ing that  '*the  power  of  taxation  shall  never  be  sur- 
rendered, suspended  or  contracted  away"  the  constitu- 
tionality of  the  act  is  open  to  question. 

5.  State  Income  Tax. 

The  income  derived  from  bonds  of  subdivisions  of  the 

State  is  subject  to  the  State  Income  Tax. 
Rev.  Stats.  1910,  Sec.  7302,  as  amended  by  Laws  1915, 

Ch.  107. 
A  graduated  income  tax  is  provided  for  by  Laws  1915, 

Ch.  164,  as  amended  by  Laws  1917,  Ch.  265,  and  Laws 

1921,  Ch.  44. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


86  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

OREGON 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Bonds  issued  on  or  after  May  24,  1921,  for  building  or 
maintaining  public  roads,  highway  bridges,  etc.,  exempt, 
but  income  therefrom  taxable. 

Laws  1921,  Ch.  355. 

Other  bonds  taxable. 

Oregon  Laws  1920,  Sees.  4232,  4234  and  4271. 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  issued  by  counties  on  or  after  May  24,  1921,  for 
building  or  maintaining  public  roads,  highway  bridges, 
etc.,  exempt,  but  income  therefrom  taxable. 

Laws  1921,  Ch.  355. 

Other  bonds  taxable. 

Oregon  Laws  1920,  Sees.  4232,  4234  and  4271. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Oregon  Laws  1920,  Sees.  4232,  4234  and  4271. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  87 

PENNSYLVANIA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  See.  3701. 
Purdon's  Dig.,  Vol.  7,  p.  7613,  Sec.  1. 
Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt. 

Purdon's  Dig.,  Vol.  7,  p.  7613,  Sec.  2. 

3.  Bonds  of  subdivisions  of  the  State. 

Subject  to  a  state  tax  of  four  mills  on  the  nominal  value, 
which  is  deducted  by  the  Treasurer  of  the  subdivision 
from  the  interest  paid  upon  the  bond,  unless  the  bond 
is  held  by  a  non-resident,  or  unless  the  municipality 
contracts  to  pay  the  tax. 

Purdon's  Dig.,  Vol.  7,  p.  7618,  Sees.  22-24,  as  amended 
by  Laws  1919',  Ch.  375  and  Sec.  82. 

Bonds  subject  to  the  above  tax  are  not  subject  to  taxa- 
tion for  county,  school  or  other  local  purposes. 

Purdon's  Dig.,  Vol.  7,  p.  7618,  Sees.  22-24,  as  amended  by 
Laws  1919,  Ch.  375. 

A  county  may  contract  to  pay  the  State  tax  levied  on  its 
bonds  issued  for  road  purposes  and  thus  issue  "tax 
free"  bonds. 

Purdon's  Dig.,  Vol.  7,  Taxes,  Sec.  80. 

Bonds  held  by  non-residents  are  taxable  if  actually  located 
within  the  State. 

Purdon's  Dig.,  Vol.  7,  p.  7618,  Sees.  1  &  22-24,  as  amended 
by  Laws  1919,  Ch.  375. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Purdon's  Dig.,  Vol.  7,  Taxes,  Sec.  1  and  Sees.  22-24,  p. 
7618,  as  amended  by  Laws  1919,  Ch.  375. 

5.  State  Income  Tax. 

None. 

Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  aa  in  the 
hands  of  residents,  unless  otherwise  noted. 


88  TAXATION  OF  FEDERAL,  STATE  AISTD  MUNICIPAL  BONDS 

PHILIPPINE    ISLANDS 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sec.  13. 

2.  Bonds  issued  by  the  Philippine  Islands. 

Exempt  from  taxation  by  the  government  of  the  U.  S., 
or  by  the  government  of  the  Philippine  Islands,  or  by 
any  political  or  municipal  subdivision  thereof,  or  by 
any  State,  or  by  any  county,  municipality,  or  other 
municipal  subdivision  of  any  State  or  Territory  of  the 
U.  S.,  or  by  the  District  of  Columbia. 

33  U.  S.  Stats,  at  Large,  689. 

3.  Bonds  of  subdivisions  of  the  Philippine  Islands. 

Exempt   (same  as  above). 
33  U.  S.  Stats,  at  Large,  689. 

4.  Bonds  of  other  States  and  subdivisions  thereof. 

Exempt. 

Ante,  Sec.  16. 

Bonds  issued  by  Territories  or  subdivisions  may  be  taxed 
by  the  Philippine  Islands  unless  exempted  from  taxa- 
tion by  act  of  Congress,  but  no  law  actually  taxing  such 
bonds  has  been  found. 

Ante,  Sec.  13. 

5.  Insular  Income  Tax. 

None. 

The  income  derived  from  the  bonds  of  the  Philippine 

Islands  or  its  subdivisions  is  exempt  from  taxation 

under  the  Federal  Income  Tax  Law. 
U.  S.  Revenue  Law  1918,  Sec.  213. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  Hon- 
residents  if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


1 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAIi  BONDS  89 

PORTO    RICO 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.,  U.  S.,  See.  3701. 
Political  Code,  Sec.  291. 
Ante,  Sec.  13. 

2.  Bonds  of  the  Government  of  Porto  Rico. 

Exempt  from  taxation  by  the  government  of  the  U.  S., 
or  by  the  government  of  Porto  Rico,  or  by  any  political 
or  muncipal  subdivision  thereof,  or  by  any  state,  or 
by  any  county,  municipality,  or  other  municipal  sub- 
division of  any  state  or  territory  of  the  U.  S.,  or  by  the 
District  of  Columbia. 

39  U.  S.  Stats,  at  Large,  Ch.  145,  p.  953,  as  amended, 
Laws  66th  Congress,  Public — No.  301. 

3.  Bonds  of  subdivisions  of  Porto  Rico. 

Exempt  (same  as  above). 

39  U.  S.  Stats,  at  Large,  Ch.  145,  p.  953,  as  amended, 
Laws  66th  Congress,  Public — No,  301. 

4.  Bonds  of  other  States  and  subdivbions. 

Exempt. 

Ante,  Sec.  16. 

Bonds  of  territories  and  subdivisions  are  taxable  unless 

exempted  from  taxation  by  act  of  Congress. 
Pol.  Code,  Sec.  290. 
Ante,  Sec.  13. 

5.  Insulaur  Income  Tax. 

None. 

The  income  derived  from  the  bonds  of  Porto  Rico  or  its 

subdivisions  is  exempt  from  taxation  under  the  Federal 

Income  Tax  Law. 
U.  S.  Revenue  Law  1918,  Sec.  213. 

Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  v?ell  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


90  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

RHODE    ISLAND 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  See.  3701. 

R.  I.  Hosp.  Trust  Co.  v.  Armington,  22  R.  I.  33. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt,   only  when   exempted  by   the   law   authorizing 

their  issuance. 
Gen.  Laws  19t)9,  Tit.  9,  Ch.  56,  Sec.  2. 
If  not  exempted  as  above,  are  taxable  at  uniform  rate  of 

40  cents  for  each  $100  of  assessed  valuation. 
Gen.  Laws  1909,  Tit.  9,  Ch.  57,  Sec.  11,  as  added  by  Laws 

1912,  Ch.  56,  Sec.  1  and  Ch.  769. 
Note :  Since  1909  it  has  been  the  practice  to  exempt  State 

bonds  from  taxation  in  the  statutes  authorizing  their 

issuance. 

3.  Bonds  of  subdivisions  of  the  State. 

Taxable  at  the  uniform  rate  of  40  cents  for  each  $100  of 

assessed  valuation. 
Gen.  Laws  1909,  Tit.  9,  Ch.  57,  Sec.  11,  as  added  by  Laws 

1912,  Ch.  56,  Sec.  1,  and  Ch.  769. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable  at  the  uniform  rate  of  forty  cents  for  each  $100 

of  assessed  valuation. 
Gen.  Laws  1909,  Tit.  9,  Ch.  57,  Sec.  11,  as  added  by  Laws 

1912,  Ch.  56,  Sec.  1,  and  Ch.  769. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  91 

SOUTH    CAROLINA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Code  1912,  Sec.  294  as  amended  by  Laws  1919,  p.  136. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt. 

Code  1912,  Sec.  294  as  amended  by  Laws  1919,  p.  136. 

Nat.  Union  Bank  v.  Neil,  106  S.  C.  173;  90  S.  E.  744, 

seems  to  recognize  the  validity  of  a  statute  exempting 

State  bonds  from  taxation. 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  of  cities,  counties  and  school  districts,  issued  after 
Feb.  21,  1912,  are  exempt. 

Laws  1912,  p.  682. 

School  district  bonds,  issued  pursuant  to  the  vote  of  a 
majority  of  the  qualified  voters  of  the  district  after 
March  11, 1908,  for  the  purpose  of  erecting  or  equipping 
school  buildings,  for  maintaining  public  schools  or  to 
pay  indebtedness  of  such  districts  are  also  exempt. 

Code  1912,  Sec.  294,  as  amended  by  Laws  1919,  p.  136. 

In  the  case  of  Chester  County  v.  White  Bros.,  70  S.  C. 
433,  50  S.  E.  28,  the  power  of  the  legislature  to  exempt 
county  bonds  from  taxation  was  sustained  under  Art. 
10,  Sec.  1  of  the  Constitution  of  South  Carolina,  the 
exemption  being  for  a  municipal  purpose. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Code  1912,  Sec.  287. 

5.  State  Income  Tax. 

The  State  Income  Tax  Law  (Code  1912,  Sees.  354-360) 
was  repealed  by  Laws  1918,  p.  773. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  other-  ise  noted. 


92  TAXATION  OF  FEDEBAIi,  STATE  AND  MUNICIPAL  BONDS 

SOUTH    DAKOTA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  See.  3701. 

Ante,  Sees.  11-12, 

2.  Bonds  of  the  State. 

Exempt. 

Nat.  Surety  Co.  v.  Starkey,  41  S.  D.  356 ;  170  N.  W.  582. 

Bonds   issued   by   the    State   Highway   Commission   are 

exempt. 
Laws  1921,  Ch.  127. 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  of  counties  and  municipalities  are  exempt. 

Laws  1919,  Ch.  109,  Sec.  8,  Subd.  5. 

Nat.  Surety  Co.  v.  Starkey,  41  S.  D.  356 ;  170  N.  W.  582. 

In  the  above  case,  the  Supreme  Court  of  South  Dakota 
had  occasion  to  construe  the  provisions  of  the  State 
constitution  authorizing  the  taxing  of  property  and 
investments  in  bonds,  also  the  provisions  of  the  State 
statutes  authorizing  the  taxation  of  public  securities. 
The  court  held  it  was  not  intended  by  the  use  of  the 
word  "bonds"  in  the  constitutional  provision  to  include 
the  public  securities  issued  by  the  State  of  South  Dakota, 
its  counties  or  municipalities,  and  neither  was  it  in- 
tended by  the  use  of  the  word  "property"  to  include 
as  taxable  the  bonds  issued  by  the  State  of  South  Da- 
kota, its  counties  or  municipalities. 

4.  Bonds  of  other  States  and  subdivisions. 

Laws  1919,  Ch.  109,  Sec.  8,  Subd.  5,  is  susceptible  of  the 
construction  that  it  exempts  such  bonds  from  taxation. 
Prior  to  the  enactment  of  this  statute  such  bonds  were 
taxable. 

Rev.  Code  1919,  Sees.  6667  and  6669. 

5.  State  Income  Tax. 

None. 

Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  vrell  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  93 


TENNESSEE 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Thompson's  Shannon's  Code  1917,  See.  777. 

So  much  of  Sec.  690  of  said  Code  as  attempts  to  tax  in- 
come derived  from  bonds  of  the  United  States  was  held 
unconstitutional  by  the  Supreme  Court  of  Tennessee. 
Mosley  v.  State,  115  Tenn.  52 ;  86  S.  W.  714. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt,  if  issued  after  April  15,  1919. 

Pub.  Laws  1919,  Ch.  114. 

In  the  case  of  Foster  v.  Roberts,  142  Tenn.  350 ;  219  S.  W. 
729,  decided  March  27,  1920,  the  Supreme  Court  of 
Tennessee  reversed  its  prior  rulings  to  the  effect  that 
Const.  Art.  2,  Sec.  28  prohibited  the  legislature  from 
exempting  bonds  from  taxation  and  held  that  Ch.  114, 
Pub.  Laws  1919,  exempting  State  Bonds  from  taxation, 
is  constitutional.  Prior  to  this  decision  the  Supreme 
Court  had  held  that  the  legislature  could  not  exempt 
from  taxation  property  not  enumerated  in  the  consti- 
tution of  the  State. 

See  Keith  v.  State,  Funding  Board,  127  Tenn.  441,  155 
S.  W.  142. 

The  court  based  its  decision  on  the  fact  that  the  issuance 
of  bonds  by  a  state  is  an  exercise  of  its  sovereign  power 
to  contract,  which  power  is  distinct  from  the  taxing 
power  and  not  subject  to  the  limitations  upon  the  exer- 
cise of  that  power.  Consequently  the  state  might  con- 
tract to  exempt  its  obligations  from  taxation.  It  was 
also  held  that  such  bonds  are  not  property  within  the 
meaning  of  the  taxation  clause  of  the  constitution.  As 
the  counties  and  municipalities  of  the  state  are  mere 
agencies  of  the  state  for  governmental  purposes,  it 
would  seem  that  the  reasoning  of  the  court  is  equally 
applicable  to  the  bonds  of  such  subdivisions  and  that  it 
is  likewise  within  the  power  of  the  legislature  to  exempt 
such  bonds  from  taxation. 


94  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

3.  Bonds  of  subdivisions  of  the  State. 

Town  and  city  bonds  are  exempt,  if  issued  after  Sept.  2, 

1920. 
Pub.  Laws  1920,  Ch.  6. 
County  bonds  are  exempt,  if  issued  after  Sept.  3,  1920. 

Pub.  Laws  1920,  Ch.  8;  Pub.  Laws  1921,  Ch.  25. 
All  other  bonds  are  taxable. 
Thompson's  Shannon's  Code  1917,  Sec.  777. 

4.  Bonds  of  other  States  emd  subdivisions. 

Taxable. 

Thompson's  Shannon's  Code  1917,  Sees.  777  and  779. 

5.  State  Income  Tax. 

The  income  derived  from  bonds  not  taxed  ad  valorem 
other  than  state,  county,  city  and  town  bonds  which 
are  exempted  by  the  acts  above  mentioned,  is  taxable 
on  the  same  basis  as  other  personal  property. 

Thompson's  Shannon's  Code  1917,  Sec.  690. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  95 

TEXAS 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  See.  3701. 

Waco  V.  Amicable  Life  Ins.  Co.,  230  S.  W.  698. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Taxable. 

Vernon's  Sayle's  Civil  Stats.  1914,  Arts.  7503  and  7505. 

3.  Bonds  of  subdivisions  of  the  State. 

Taxable. 

Vernon's  Sayle's  Civil  Stats.  1914,  Arts.  7503  and  7505 

County,  city  and  town  bonds,  issued  to  compromise  and 

fund  bonded  indebtedness,  are  exempt  from  taxation 

by  the  subdivision  issuing  them. 
Vernon's  Sayle's  Civil  Stats.  1914,  Art.  689. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Vernon's  Sayle's  Civil  Stats.  1914,  Arts.  7503  and  7505. 
State  V.  Fidelity  &  Deposit  Co.,  35  Tex.  Civ.  App.  214; 
80  S.  W.  544. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


96  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAIj  BONDS 

UTAH 

1 .  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  See.  3701. 

Salt  Lake  City  Nat.  Bank  v.  Golding,  2  Utah  1. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

All  outstanding  bonds  are,  by  the  various  statutes  author- 
izing their  issuance,  exempt  from  taxation  for  any  pur- 
pose within  the  State  of  Utah.  State  bonds  are  not  in- 
cluded among  the  properties  which  the  legislature  is  ex- 
pressly authorized  to  exempt  from  taxation  by  Art.  13, 
Sec.  3  of  the  constitution.  The  power  of  the  legisla- 
ture to  exempt  from  taxation  property  not  enumerated 
in  that  section  of  the  constitution,  has  never  been  passed 
upon  by  the  Supreme  Court  of  Utah.  The  power  of  the 
legislature  to  exempt  state  bonds  from  taxation  under 
similar  constitutional  provisions  has  been  sustained, 
however,  in  other  states.  See  ante.  Sees.  24-45.  Except 
for  the  tax  exempt  provisions  in  the  respective  statutes 
authorizing  the  issuance  of  the  outstanding  state  bonds, 
the  bonds  would  be  taxable  under  Comp.  Laws  1917, 
Sees.  5861  and  5865. 

3.  Bonds  of  subdivbions  of  the  State. 

Taxable. 

Comp.  Laws  1917,  Sees.  5861  and  5865. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Comp.  Laws  1917,  Sees.  5861  and  5865. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residerts  if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


I 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  97 

VERMONT 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Gen.  Laws  1917,  Sec.  684,  exempts  U.  S.  securities  which 
are  specially  exempt  from  taxation  by  the  laws  of  the 
U.  S.  at  the  time  of  listing  personal  property  and  also 
provides  that  interest  and  income  from  such  securities 
may  be  taxed  like  other  personal  estate.  This  provision, 
so  far  as  it  attempts  to  tax  bonds  of  the  U.  S.  or  of  the 
territories  thereof,  or  the  interest  or  income  from  such 
bonds,  is  clearly  unconstitutional. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt,  if  issued  after  Dec.  4,  1912,  at  a  rate  of  interest 
not  exceeding  4  per  cent  per  annum,  or  if  issued  after 
Mar.  1,  1919,  at  a  rate  of  interest  not  exceeding  5  per 
cent,  per  annum. 

Gen.  Laws  1917,  Sec.  684,  Subd.  12,  as  amended  by  Laws 
1919,  Act  No.  25. 

3.  Bonds  of  subdivbions  of  the  State. 

Bonds  of  counties,  towns,  town  school  districts,  villages, 
or  incorporated  school  or  fire  districts,  issued  after  De- 
cember 4,  1912,  at  a  rate  of  interest  not  exceeding  4 
per  cent,  and  such  bonds  issued  after  March  1,  1919,  at 
a  rate  of  interest  not  exceeding  5  per  cent  are  exempt. 

Gen.  Laws  1917,  Sec.  684,  Subd.  12,  as  amended  by  Laws 
1919,  Act.  No.  25. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Gen.  Laws  1917,  Sec.  703. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


98  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

VIRGINIA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt,  if  issued  between  February  14,  1882,  and  Feb- 
ruary 1,  1904,  or  if  thereafter  exempted  by  the  statutes 
authorizing  their  issuance. 

Const.  Art.  13,  Sec.  183. 

Code  (Annotated)  1919,  Sec.  2301. 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  of  drainage  districts,  issued  under  Tit.  15,  Ch.  73, 

Code  1919,   are   exempt  from  county  and  municipal 

taxation. 
Code  (Annotated)  1919,  Sec.  1774. 
Bonds  issued  by  counties,  cities  or  towns  and  school  boards 

thereof  may  be  exempted  by  the  authorities  of  such 

localities  from  local  taxation. 
Const.  Art.  13,  Sec.  183. 
Code  (Annotated)  1919,  Sec.  2302. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Code  (Annotated)  1919,  Sees.  2306  and  2307. 

5.  State  Income  Tax. 

All  interest  upon  notes,  bonds,  or  other  evidences  of  debt 
of  every  description,  including  those  of  other  States, 
or  other  countries  (except  bonds  of  this  State  and  of 
the  U.  S.),  is  subject  to  the  income  tax. 

Laws  1918,  Ch.  219. 

Interest  on  bonds  of  drainage  districts  issued  under  Code 
(Annotated)  1919,  Tit.  15,  Ch.  73,  is  exempt  from  in- 
come taxes. 

Code  (Anotated)  1919,  Sec.  1774. 

Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  99 

WASHINGTON 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Eev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt. 

Remington's  1915  Codes  and  Statutes,  Sec.  9093. 
State,  ex  rel.  Wolff  v.  Parmenter,  50  Wash.  164 ;  96  Pae. 
1047. 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  of  counties,  municipalities,  and  school  districts  are 

exempt. 
Remington's  1915  Codes  and  Statutes,  Sec.  9093. 

4.  Bonds  of  other  States  and  subdivisions. 

Bonds  of  states,  counties,  municipalities,  and  school  dis- 
tricts are  exempt. 
Remington's  1915  Codes  and  Statutes,  Sec.  9093. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


100  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

WEST    VIRGINIA 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt, 

Kev.  Stats.  U.  S.,  Sec.  3701. 

Old  Nat.  Bank  v.  County  Court,  58  W.  Va.  559 ;  52  S.  B. 

494. 
Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

The  only  bonded  debt  ever  incurred  by  the  State  is  the 
issue  of  bonds  delivered  to  the  State  of  Virginia  in  set- 
tlement of  West  Virginia's  share  of  the  debt  of  that 
State  as  determined  by  the  Supreme  Court  of  the  United 
States.  The  Act  authorizing  the  issuance  of  those 
bonds  (Laws  Extra  Session  1919,  Ch.  10)  provides  that 
they  shall  be  exempt  from  taxation.  Neither  State  nor 
municipal  bonds  are  included  among  the  properties 
which  the  legislature  is  expressly  authorized  to  exempt 
from  taxation  by  Art.  10,  Sec.  1  of  the  constitution. 
The  power  of  the  legislature  to  exempt  from  taxation 
property  not  enumerated  in  that  section  of  the  consti- 
tution has  never  been  passed  upon  by  the  Supreme 
Court  of  Appeals  of  the  State.  The  power  of  the  legis- 
lature to  exempt  state  bonds  from  taxation  under  simi- 
lar constitutional  provisions  has  been  sustained,  how 
ever,  in  other  states.    See  ante,  'Sees.  24-45. 

Except  for  the  statute  above  noted,  the  bonds  would  have 
been  taxable  under  Code  1913,  Sees.  945-946. 

3.  Bonds  of  subdivisions  of  the  State. 

Taxable. 

Code  1913,  Sees.  945-946. 

Section  1547  of  the  Code  of  1913  provides  that  bonds 
of  counties  issued  under  Sec.  1546  of  the  Code  of  1913, 
for  refunding  purposes  shall  be  exempt  from  county, 
district  or  municipal  taxation,  if  so  provided  on  the 
face  of  the  bonds.  The  constitutionality  of  this  statute^, 
however,  has  never  been  decided. 

Banks  and  trust  companies  are  not  required  to  list  per- 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  101 

sonal  property  for  taxation,  and,  accordingly,  in  the 
hands  of  such  institutions  such  bonds  are  not  taxed. 
See  Code  1913,  Sec.  961-963. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Code  1913,  Sec.  947. 

5.  State  Income  Tax. 

None. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


102  TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS 

WISCONSIN 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Taxable. 

Wis.  Stats.  1919,  Sees.  1034  and  1038,  subd.  10. 

Note:  Apparently  all  outstanding  evidences  of  debt  of 
the  State  of  Wisconsin  are  held  by  the  Board  of  Com'rs 
of  the  Trust  Funds  in  whose  hands  outstanding  State 
Bonds  would  be  exempt  from  taxation. 

State  V.  Donald,  160  Wis.  21 ;  151  N.  W.  331. 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  issued  by  counties,  towns,  cities,  villages,  school 
districts  or  boards  of  school  directors  of  any  town  or- 
ganized under  the  township  system  of  school  govern- 
ment in  the  State  are  exempt. 

Wis.  Stats.  1919,  Sec.  1038,  Subd.  2m. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Wis.  Stats.  1919,  Sees.  1034  and  1038,  Subd.  10. 

5.  State  Income  Tax. 

AU  interest  derived  from  money  invested  in  notes,  mort- 
gages, bonds,  or  other  evidences  of  debt  of  any  kind 
whatsoever  is  taxable. 

Wis.  Stats.  1919,  Sec.  1087M-2. 


Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


TAXATION  OF  FEDERAL,  STATE  AND  MUNICIPAL  BONDS  103 

WYOMING 

1.  Bonds  of  the  United  States  and  Territories. 

Exempt. 

Rev.  Stats.  U.  S.,  Sec.  3701. 

Ante,  Sees.  11-12. 

2.  Bonds  of  the  State. 

Exempt  in  the  hands  of  residents,  provided  the  owners 
list  the  same  annually  on  their  assessment  schedule, 
marking  opposite  thereto  the  word  *  *  exempt. ' ' 

Taxable  in  the  hands  of  non-residents  if  having  an  actual 
situs  in  the  State. 

Comp.  Stats.,  Sec.  2323. 

It  would  seem  that  this  statute  violates  Art.  4,  Sec.  2  of 
the  Constitution  of  the  United  States  by  denying 
citizens  of  other  states  an  immunity  granted  to  citizens 
of  Wyoming.  See  Travis  v.  Yale  &  Towne  Mfg.  Co., 
252  U.  S.  60. 

3.  Bonds  of  subdivisions  of  the  State. 

Bonds  of  counties,  school  districts,  and  municipalities  are 
exempt  in  the  hands  of  residents,  provided  the  owners 
list  the  same  annually  on  their  assessment  schedule, 
marking  opposite  thereto  the  word  * '  exempt. ' ' 

All  bonds  are  taxable  in  the  hands  of  non-residents  if  hav- 
ing an  actual  situs  in  the  State. 

Comp.  Stats.,  Sec.  2323. 

Is  this  Act  constitutional  ?  See  preceding  paragraph  rela- 
tive to  State  Bonds. 

4.  Bonds  of  other  States  and  subdivisions. 

Taxable. 

Comp.  Stats.,  See.  2324. 

5.  State  hicome  Tax. 

None. 

Note:  Bonds  listed  above  as  taxable  are  taxable  in  the  hands  of  non- 
residents if  having  an  actual  situs  in  the  State  as  well  as  in  the 
hands  of  residents,  unless  otherwise  noted. 


INDEX 

Bondholders.  page 

rights  of,  where  recital  as  to  exemption  from 
taxation  is  invalid 30 

Bonds. 

distinction  between  bonds  and  notes  ordinarily 
one  of  name  only 39 

Capital  Stock. 

element  of  taxable  value  when  in  hands  of  cor- 
poration      36 

Certificates  of  Indebtedness. 

principles  of  taxation  applicable  to  bonds,  fre- 
quently applied  to 39 

Congress. 

may  authorize  States  to  tax  Federal  agencies ....  38 

Constitutional  Limitations. 

due  process  of  law 3 

upon  Federal  taxing  power 2 

upon  taxing  power  of  States ., 3 

Contracting  Power. 

taxation  of 17 

is  a  governmental  function 17 

Contracts. 

when  exemptions  from  taxation  are 19 

when  exemptions  from  taxation  are  not 19 

Secured  Debts  Acts  authorize  contracts  for  ex- 
emption from  taxation 20 

105 


106  INDEX 


Contractual  Rights.  page 

none  conferred  by  invalid  recital ^ 30-31 

Corporate  Stock. 

taxation  of,  35,  39 
effect  upon  capital  invested  in  tax-exempt 

securities 36 

not  a  tax  upon  capital  of  corporation 35 

collection  of  taxes  upon 37 

State  may  require  corporation  to  pay  tax. .  37 
not  taxed  when  corporation  or  capital  stock 

exempt    ^- 37-38 

Corporation. 

may  be   exempted   from  payment  of  taxes  by 

contract    37-38 

Coupons. 

tax  on  bond  cannot  be  applied  to  coupons  sep- 
arated from  bond 7 

District  of  Columbia. 

bonds  of,  not  taxable  by  States 4 

Direct  Tsixes. 

general  classes  of ^ 21 

of  Federal  Government  must  be  apportioned 
among  the  States 3, 23 

Double  Taxation. 

taxation  of  property  and  income  therefrom  not . .  21 

not  prohibited  by  Federal  constitution 30 

Due  Process  of  Law. 

contractual  obligations  may  not  be  impaired 
without   18 

attempt  to  tax  bonds  without  jurisdiction  de- 
prives owner  of _. 28 


INDEX  107 

Estoppel.  PAGE 

cannot  be  invoked  when  recital  as  to  exemption 

is  invalid 31 

recital  must  cover  matters  of  fact .j 31 

Exemption. 

effect  of  invalid  recital  as  to 30-32 

Exemption  From  Taxation. 

as  a  property  right ^ 18 

when  a  contract 19 

when  not  a  contract 19 

effect  upon  power  to  tax  income  of  security 26-27 

power  of  the  United  States  to  withdraw 18 

power  of  Territories  to  withdraw 18-19 

power  of  State  to  withdraw 19-20 

power  of  legislature  to  exempt  State  and  munici- 
pal bonds 8 

effect  of  constitutional  limitations 8-18 

effect  of  uniformity  clause 8-18 

Georgia   rule 10 

Louisiana  rule 10 

Missouri  rule 13 

Montana   rule j. 14 

North  Carolina  rule 11 

Oklahoma  rule 12 

South  Carolina  rule 11 

South  Dakota  rule 13 

Tennessee  rule 9 

no  distinction  between  State  and  municipal 

bonds 16 

exceptions  to  rule  discussed ^  14 

summary  of  decisions 14-18 


108  INDEX 


Federal  Agency.  page 

territories  may  tax  unless  restrained  by  Act  of 

Congress ., 25,  38 

Federsd  GovernmenL 

relation  to  States 5 

property  and  instrumentalities  of,  not  taxable 
by  States 16 

Fifth  Amendment. 

prohibits  United  States  from  impairing  obligation 
of  contracts 18 

Fourteenth  Amendment. 

does  not  apply  to  United  States ._ 18 

Franchise  Taxes. 

nature  of 35 

may  be  levied  upon  exempt  securities 35 

power  of  States  to  levy 35 

Fraud. 

invalid  recital  of  tax  exemption  no  ground  for 

action  on  theory  of  fraud 31-32 

Governmental  Function. 

borrowing  of  money  is  an  exercise  of 17 

taxation  of 17 

Income  Teixes. 

nature  of  tax ^.^ 20 

not  a  property  tax 20-21 

not  a  direct  personal  tax 21 

not  a  privilege  tax 21 

power  to  enact  not  dependent  upon  constitutional 

grant   20 


INDEX  109 

PAGE 

graduated  taxes  held  constitutional 21 

taxation  of  non-residents 21 

jurisdiction  of  person  not  required 21 

Inheritance  Taxes. 

constitutionality  of 33 

power  of  levy 33 

levied  upon  right  to  inherit 34 

may  be  levied  upon  exempt  securities 34 

may  be  levied  upon  bequest  to  United  States. . .  35 

power  of  United  States  to  levy 35 

Interpretation  of  Lavrs. 

is  province  of  courts 31 

Interstate  Commerce. 

may  not  be  taxed  by  States 3 

income  tax  on  non-resident  not  tax  upon 21 

Instrumentality  of  Government. 

taxation  of 16 

Invalid  Recital. 

effect  when  exemption  unauthorized 30-32 

does  not  affect  validity  of  bond 30 

Legislature. 

power  to  exempt  State  and  municipal  bonds ....  8 
effect  of  uniformity  clause  on  power  to  exempt 

bonds  from  taxation 8-18 

may  authorize  municipalities   to   exempt  bonds 

from  local  taxation 32 

Lex  Situs. 

governs  taxation  of  tangible  personal  property 

of  non-resident   28 

governs  taxation  of  public  securities  of  non- 
resident    28 


110 


INDEX 


Municipal  Bonds. 

not  taxable  by  United  States 

not  taxable  by  Territories 

may  be  taxed  by  other  States 

may  be  taxed  by  municipalities 

power  of  United  States  to  tax  income  of 

Territories  may  not  tax  income  of 

State  may  tax  income  of 

Municipal  Corporation. 

is  political  subdivision  of  State 

Municipalities. 

cannot  exempt  bonds  unless  authorized  by  statute 

power  to  exempt  bonds  from  local  taxation 

cannot  be  held  on  warranty  because  of  invalid 
recital    

National  Banks. 

are   Federal   agencies. 

rule  in  Oklahoma  as  to  taxation  of  stockholders  of 
taxation  of  stock  of 

Non-Residents. 

may  not  be  taxed  at  higher  rate  than  resident 

double  taxation  of 

taxation  of  bonds  of 

taxation  of  income  of  bonds  owned  by 

subject  to  income  tax  on  income  earned  in  State 
subject  to  income  tax  on  income  received  from 

residents  

tax  may  not  be  deducted  from  interest  paid  to . . . 
may  not  be  taxed  at  higher  rate  than  residents . . 
tax  may  not  be  deducted  from  interest  on  bonds 

of   

situs  for  taxation  of  personal  property  of 


PAGE 

5 

6 

7 

7 

22-25 

25 

26 


17 


30-31 
32 


31 


38 
38 
38 


29-30 
30 

28-29 
21 
21 

21 

6-7 

3 

29 
27 


INDEX  111 

North  Carolina.  page 

distinction  between  State  and  municipal  bonds . .  16 

Notes. 

distinction  between  notes  and  bonds  ordinarily 

one  of  name  only 39 

principles  of  taxation  applicable  to  bonds,  fre- 
quently applied  to 39 

Obligation  of  Contract. 

may  not  be  impaired  by  United  States 18 

impaired  by  deducting  tax  from  interest  paid 

non-resident  6-7,  29 

not  impaired  by  deducting  tax  from  interest  paid 

resident 7 

may  not  be  impaired  in  taxing  bonds 7 

impaired  by  applying  tax  on  bond  to  coupons 

separated  therefrom 7 

Oklahoma. 

rule  as  to  taxation  of  stockholders  of  National 

banks , 38 

Privilege  Taxes. 

nature  of 35 

power  of  States  to  levy 35 

effect  upon  exempt  securities 35 

Property. 

of  corporation,  element  in  determining  taxable 

value  of  stock 36 

Property  Right. 

exemption  from  taxation  as 18 

Residents. 

may  not  be  taxed  at  lower  rate  than  non-residents  29-30 

tax  may  be  deducted  from  interest  on  bonds  of. .  6-7 


112  INDEX 

Secured  Debt  Acts.  page 

constitutionality  of 32-33 

authorize  contract  for  exemption  from  taxation .  .  20 
ordinarily  provide  for  exemption  from  taxation 

for  limited  period 32 

Securities. 

if  converted  to  defraud  government  money  in- 
vested is  taxable 33 

Situs  for  Taxation. 

of  bonds  of  non-residents 28 

temporary  presence  of  bond  in  the  State  does  not 

fix 29 

Sixteenth  Amendment. 

necessity  for 23 

effect  of 23-24 

Special  Legislation. 

constitutionality  of  exemptions  by  special  act. . .  8 

State  Bonds. 

not  taxable  by  United  States 5 

not  taxable  by  Territories 6 

may  be  taxed  by  the  State 6 

may  be  taxed  by  other  States 7 

power  of  United  States  to  tax  income  of 22-25 

Territories  may  not  tax  income  of 25-26 

State  may  tax  income  of 26-27 

States. 

each  State  a  sovereign  State ^  1 

power  of  taxation  inherent 1 

taxation  of 17 

property  of,  presumed  exempt  from  taxation ....  16-17 


INDEX 


113 


may  not  tax  income  of  Federal  bonds 

power  to  tax  income  of  State  bonds 

power  to  tax  income  of  municipal  bonds 

power  to  tax  income  of  bonds  exempt  from  taxa- 
tion   

may  contract  to  exempt  bonds  from  taxation. . , . 

power  to  withdraw  exemption  from  taxation 

obligation  of  contracts  may  not  be  impaired  by.  . 

Fourteenth  Amendment  applies  only  to 

power  to  levy  franchise  or  privilege  taxes 

power  to  tax  stock  of  National  banks 

no  inheritance  tax  on  devise  to,  unless  expressly 
levied    

Stock. 

shares  of,  element  of  taxable  value  in  hands  of 
stockholders    

Surplusage. 

invalid  recital  must  be  regarded  as 

Taxing  Power. 

definition 

subjects  of 

includes  all  methods  of  taxation 

of  the  United  States 

of  the  States 

extent  of  power  of  the  States     

limitations  upon  Federal  taxing  power 

constitutional  limitations  upon  taxing  power  of 
States    

purposes  for  which  it  may  be  exercised 

power  to  select  subjects  of  taxation 

power  of  States  to  tax  Federal  agencies  and 
property   


PAGE 

26 
26 
26 

26-27 
20 

19-20 
19 
18 
35 
38 

35 


36 


32 


1 

1 
20 

1 

1 
1-2 

2 

3 
2 
2 


114 


INDEX 


power  of  States  to  tax  non-residents  at  higher 

rate    

power  of  States  to  tax  interstate  commerce 

Taxpayer. 

cannot  evade  taxation  by  temporarily  converting 
property 

Territorial  Bonds. 

power  of  Federal  Government  to  tax 

not  taxable  by  States 

power  of  Territories  to  tax 

income  of  exempt  from  Federal  income  tax 

Territories  may  tax  income  of 

State  may  not  tax  income  of 

Territories. 

not  sovereign  States 

relation  to  Federal  Government 

power  of  taxation  not  inherent  in 

taxing  power  delegated  by  United  States 

may  not  tax  income  of  municipal  bonds.  .^ 

may  not  tax  income  of  State  bonds 

may  tax  Federal  agency  unless  restrained  by  Act 
of  Congress 

power  to  withdraw  exemption  from  taxation .... 

Uniformity  Clause. 

application  to  exemption  of  bonds  from  taxation 


PAGE 

3 
3 


33 


3 

4 

4-5 

22 

25 

26 


6 

1,22 

1 

6 
25-26 
25-26 

25,38 
18-19 


8-18 


United  States. 

may  not  tax  States  or  their  instrumentalities .... 
property  of  States  and  municipalities  not  taxable 

by 

Congress  may  tax  income  of  Federal  bonds 


5 
21-22 


INDEX 


115 


Congress  may  tax  iucome  of  territorial  bonds .... 

taxing  power  not  extended  by  the  Sixteenth 
Amendment 

power  to  levy  inheritance  taxes 

power  to  levy  franchise  or  privilege  taxes 

Fourteenth  Amendment  does  not  apply  to 

Fifth  Amendment  prohibits  impairment  of  con- 
tractual obligations  by 

power  to  withdraw  tax  exemption 

United  States  Bonds. 

power  of  Federal  Government  to  tax 

not  taxable  by  States 

power  of  Territories  to  tax 

power  of  Congress  to  tax  income  of 

taxation  of  income  of  by  Territories 

State  may  not  tax  income  of 

Warranty. 

municipality  cannot  be  held  on,  because  of  in- 
valid recital 


PAGE 

22 


24 
35 
35 
18 


18 
18 


3 

4 

4-5 

21-22 

25 

26 


31 


J.  xiis  uooK  IS  jj  u  jj  on  tne  last 
date  stamped  below 


10*4)  LO-ua 


u 


DEC    € 


1972 


5m-6,'41(3644) 


AA    000  892  637 


